Overview ofLabuan IBFC Banking Business

May 2012Labuan Federal Territory, Malaysia.

Role of Labuan FSA

Overview of Labuan IBFC Business

Q & A

Contents of Presentation

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Labuan Financial Services Authority (Labuan FSA), formerly known as Labuan Offshore Financial Services Authority (LOFSA), was established on 15 February 1996 under the Labuan Financial Services Authority Act 1996.

• Labuan FSA is the statutory body responsible for the development and administration of the Labuan International Business and Financial Centre (Labuan IBFC).

• Under the government’s vision to position Labuan as a progressive and an integrated financial centre catering for the Asia-Pacific market, the activities of the Labuan FSA are guided by the following objectives:-

to promote and develop Labuan as an international centre for business and financial services;

to develop national objectives, policies and priorities for the orderly development and administration of the international business and financial services in Labuan; and

to act as the central regulatory, supervisory and enforcement authority of the international business and financial services industry in Labuan.

Labuan FSA: Objective

Companies Commission of Malaysia

Bank Negara Malaysia

Securities Commission

Incorporate/ register Labuan companies

License and supervise trust & management companies

License & supervise Labuan banks

License & supervise Labuan insurance & insurance related companies

License & supervise fund managers

Register funds Approval of

bonds issuance Regulate LFX

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Labuan FSA (established in 1996)

Labuan FSA: One-stop Regulatory Agency

Labuan FSA : Members of Authority

Datuk Ranjit Ajit Singh Chairman, Securities Commission

Encik Ahmad Hizzad BaharuddinDirector-General of Labuan FSA

Tan Sri Dato’ Sri Dr. Zeti Akhtar AzizGovernor, Central Bank of Malaysia (Chairman)

i. Representing Regulatory Authorities

Y. Bhg. Dato’ Siti Halimah bt. IsmailMinistry of Finance Malaysia

Encik Zainal Abidin

Abdullah CEO, Labuan Corporation

Encik Mohd Naim Daruwish CEO,

Companies Commission of Malaysia

Labuan FSA: Members of Authority …..contd

Datuk Oh Chong PengChairman, Alliance Financial Group Bhd

Datuk Ali Abdul KadirChairman, Jobstreet Corp, Milux Corp, Microlink Solution, Privisia Technology Bhd & Financial Reporting Foundation

Dato’ Mohammed Azlan HashimChairman, D & O Green Technologies Bhd, SILK Holdings Bhd and Labuan IBFC Inc Sdn Bhd

ii. Representing Private Sector

Labuan FSA: International Advisory Panel (IAP)

Dato’ Mohammed Azlan Hashim Chairman of IAP

Dato’ Seri Ahmad Johan Mohammad RaslanExecutive Chairman of PricewaterhouseCoopers, Malaysia

Anthony NeohSenior Member of the Hong Kong Bar

Datuk George RatilalExecutive Vice President (Finance) of PETRONAS

Iqbal KhanCEO of Fajr Capital

Tan Sri Dato’ Megat Zaharuddin Megat Mohd NorChairman of Malayan Banking Bhd

Michael TrothRegion Head, Citi Trust in Asia Pacific

Other IAP members:• Mr Baron Frederik van Tuyll, MD of Equity Trust• Datuk Wira Jalilah Baba, Group Chairman of PKT Logistics Group S/B, Former DG of Malaysia Investment Development Authority (MIDA)• Mr Frank McInerney, GM of General Reinsurance AG’s Singapore

Labuan FSA: The Shariah Supervisory Council

Dr. Mohd Daud Bakar (Chairman)President/Chief Executive OfficeInternational Institute of Islamic Finance Inc. and Chairman of the SAC of BNM & SC of Malaysia

Dato’ Dr. Abdul Halim Haji Ismail (Deputy Chairman)Member of Shariah Councils of BNM and SC of Malaysia

Professor Madya Dr. Ahmad Shahbari @ Sobri SalamonChairman of the Shariah Advisory Board of Syarikat Takaful Malaysia Berhad.

Dr. Hussain Hamed HassanChairman of Dubai Islamic Bank’s Fatwa & Shariah Supervision Board, UAE

Dr. Mohamed Ali ElgariProfessor of Islamic EconomicsKing Abdul Aziz University, Jeddah

Dr. Engku Rabiah Adawiah Engku AliAssociate Professor International Islamic University, Malaysia

•International Advisory Panel (IAP)•Shariah Supervisory Council (SSC)

Audit Department

Advisory Committee

Director-General

Deputy Director-General

Corporate Affairs

Department

Business Management Department

Supervision and Enforcement Department

Strategic Development Department

•Corporate Communication and Event Management

•External Relations

•Corporate Secretarial and Performance Management

•HR

•Business Operations

•ROC

•Market Surveillance and Compliance

•Legal Services

• Banking

•Insurance

•Capital Market

•Anti-Money Laundering and Prosecution

•Industry Reporting

•Policy and Business Development

•Tax Strategy

Corporate Services

Department

•Finance•Facility Management

•ICT

•Labuan International School and Subsidiaries

Risk Management Unit

Members of Authority Audit and Risk Management Committee

Ministry of Finance

Labuan FSA: Organisation Structure

Overview of Labuan IBFC Business

Labuan : As an IOFC on 1 Oct 1990…

Develop economy of Labuan and

contribution to the growth of the nation

ComplementKuala Lumpur as

a regional financial centre

Labuan IOFCEstablished In Oct

1990 Rebranded in Jan 2008

Focus area since 2011 – 2020 - Strengthening regional and international financial integration

Definition An offshore financial centre (or OFC), although not precisely defined,

is usually a low-tax, lightly regulated jurisdiction which specializes in

providing the corporate and commercial infrastructure to facilitate the

use of that jurisdiction for the formation of offshore companies and for

the investment of offshore funds.

From Wikipedia

International Financial Centre

Why International Financial Centre?

1. Cost effective and most efficient mean of doing business

2. Product innovation to enhance return of investments

3. Well-regulated and comply with international standard and best practices

4. Niche products not available in domestic market

Cook Island

Western Samoa

Vanuatu

Nauru

Marshall Islands

Hong Kong

Thailand

Singapore

Seychelles

Mauritius

Qatar

Bahrain

Israel

Cyprus

Labuan

Austria

Liechtenstein

Netherlands

Luxembourg

Isle of Man

Irish Republic

Ireland

Guernsey

Jersey

Alderney

Switzerland

Andorra

Gibraltar

Djibouti

MadeiraCanary

Is.

LiberiaMonaco

Malta

Jordan

British Virgin Is.

AnguillaSt. Kitts

NevisSt. Vincent &

Grenadines

Barbados

Uruguay

Belize

Aruba

Bahamas

Bermuda

Turks & Caicos Is.

Cayman Is.

Costa Rica

Panama

Antilles

Dublin

Antigua

Dubai

Labuan is one of more than 70 International Financial Centres in the World

Labuan IBFC : Labuan vs Domestic Cos

Labuan FSA

Domestic Companies

Labuan Companies

SSMRegulatory Body

Governing Law

Ownership

Taxation

Labuan Companies Act 1990

100% non-resident allowed

Min 1 shareholderNo min capital

LBATA : 3% or RM20,000

Companies Act of Malaysia 1965

At least 30% bumiputera (applicable for government project only )Min 2 shareholders

Min RM2 capital

ITA : 25%

CurrencyNon-ringgit Ringgit

Labuan IBFC : Business Activities

Labuan Banking

• Wholesale Banking

• Loans/Deposit• Guarantees• Investment Banking

Capital Market

• Labuan International Financial Exchange (LFX)

- Listing / Trading

• Fund Management

- Fund Administrator

• Mutual Funds

- Private/Public

Labuan Companies• Registration of Companies• Investment Holding

• Trading• SPVs• MISR• LITC under GIFT Programme

• Labuan Limited Partnership & Limited Liability Partnership

• Protected Cell Company

• Foundations• Leasing……the above are offered in conventional and Islamic

principles

• Life/General• Broking• Underwriting• Captives• Re-Insurance

LabuanInsurance

• Trustee• Administrator• Secretarial

•Private/Public Trust

Trust Companie

s

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Labuan IBFC : Distinct Capabilities

Advantages

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Strategic Location

Wide range of Islamic and Conventional Financial Services and Products

Spectrum of Service Providers / Good Infrastructure

Lower Cost of Operations

One-Stop Regulatory Authority

Balanced and Business Friendly Regulatory Framework

1. Deletion of the word “offshore” to reflect the rebranding of Labuan IBFC.

2. LOFSA renamed as Labuan Financial Services Authority (‘Labuan FSA’).

• Labuan Financial Services Authority Act• Labuan Companies Act• Labuan Trust Act• Labuan Business Activity Tax Act

Four Acts has been retained with amendments

• Labuan Financial Services and Securities Act• Labuan Foundations Act• Labuan Limited Partnerships & Limited Liability

Partnerships Act• Labuan Islamic Financial Services and Securities Act

Promulgate four new legislation

The Outline of the changes on the Legal Framework

Labuan Financial Services Authority Inland Revenue Board

Labuan Financial Services Authority Act 1996

IBFC Regulatory Authority

Acts of General Application in Malaysia

i. Anti-Money Laundering and Anti Terrorism Financing Act 2001

ii. Mutual Assistance in Criminal Matters Act 2002

i. Labuan Business Activity Tax Act 1990

ii. Exemption Order of Income Tax Act 1967

iii. Exemption order of Stamp Act 1949

i. Labuan Companies Act 1990

ii. Labuan Trusts Act 1996

iii. Labuan Financial Services and Securities Act 2010

iv. Labuan Foundation Act 2010

v. Labuan Limited Partnerships & Limited Liability Partnership Act 2010

vi. Labuan Islamic Financial Services and Securities Act 2010

Administer & Enforce Legislation The scope and functions of the Labuan IBFC business are provided and administrated as follows …..

• Taxation under the Labuan Business Activity Tax Act (LBATA)

• No stamp duties on:-• Instruments executed by a Labuan Company (LC) in

connection with Labuan business activity• M & A of an LC• Instruments of transfer of shares between LCs

Tax Framework

Labuan trading activities 3% on audited net profits, or flat rate of RM20,000

Labuan non-trading activities 0% tax

Name of Organisation Objectives

Group of International Finance Centre Supervisors (GIFCS)

Supervision of banking related in cross border activities

Offshore Group of Insurance Supervisors (OGIS)

Supervision of international insurance business

International Organisation of Securities Commissions (IOSCO)

Cooperative forum for securities regulatory agencies

International Association of Insurance Supervisors (IAIS)

Forum of insurance regulators to promote financial stability and international standard setting body

Asia/Pacific Group on Money Laundering (APG)

Collaborative platform for technical assistance and training to improve compliance with AML/CFT standards

Islamic Financial Standards Board (IFSB)

Standard setting body to ensure sound and stable Islamic financial systems

International Islamic Financial Market (IIFM)

Standard-setting body for establishment, development, self regulation and promotion of Islamic capital and money market

International Affiliation

Labuan FSA : Client Charter

One (1) day approval for

company incorporation and

registration

Three (3) weeks approval for

leasing and fund management

licenses

One (1) month approval for

banking and insurance licences

One of the key success factors of Labuan IBFC is effectiveness and efficiency of delivering its mandated functions.

The wide range of Islamic financial products and services available in Labuan IBFC includes Islamic banking, Islamic capital market, Islamic insurance (takaful), Islamic reinsurance (retakaful), Islamic funds, waqf and Islamic trusts administration. The products and services are offered under various Shariah-compliant schemes by Islamic financial institutions in Labuan.

The Labuan Islamic Financial Services and Securities Act 2010 streamlines procedures and requirements for all Shariah-related activities in Labuan IBFC with Labuan FSA as the licensing authority.

Islamic Finance

Annual Fees

Type of Company RM

Labuan Companies 1,500

Foreign Labuan Company (Branch Operations) 5,300

Labuan Bank / Labuan Investment Bank Licensee 80,000

Leasing 40,000

Labuan Insurance Companies Licensee:

• General/Life 30,000

• Captive / Insurance Manager, Underwriting Manager and Insurance Broker

10,000

• Master-Rent-A-Captive 13,000

• Subsidiary-Rent-A-Captive 3,000

Trust Company Licensee 8,000

Private Trust Company 5,000

Type of Company RM

Labuan Foundation 750

Labuan Securities Licensee 5,000

Protecting Cell Company (PCC) Licensee – PCC (Core) 30,000

Protecting Cell Company (PCC) Licensee – PCC (Each Cell) 10,000

Labuan Limited Partnerships & Labuan Limited Liability Partnerships 1,000

Auditors 1,000

Liquidator 1,000

Fund Manager (outside Labuan) 10,000

Fund Manager (Inside Labuan) 5,000

Fund Administrator (outside Labuan) 5,000

Fund Administrator (inside Labuan) 2,000

Public Fund 2,000

Labuan IBFC fees are amongst the most competitive

Operational requirements on Labuan banking

Labuan Banks

Banking LicenceGovern by Labuan Financial Services and Securities Act (LFSSA) effective 11 Feb 2010

Full Banking License providing credit facilities; Labuan investment banking service; Islamic banking business; building credit business; credit token business; development finance business; leasing business or such other

activities receiving deposits, Other business approved by the

Authority

Investment Banking License Providing credit facilities Providing consultancy/advisory services

relating to corporate & investment matters or making investments on behalf of any person

Undertaking foreign exchange transactions, interest rate swaps, dealings in derivative instruments or derivative financial instruments or any other similar risk management activities

Other business approved by the Authority

Not allowed to accept deposits.

Dealing in Non Ringgit Malaysia & Non-MalaysianPermitted Dealings with Malaysian Residents

Labuan Banks : Eligibility

Eligibility

Full Banking License Must be a licensed bank or financial

institution supervised by competent authority

Possess sound track record Accorded a good credit rating by

acceptable rating agencies Supervised by a competent regulatory

authority Conform to generally accepted

standards of international banking practices or BIS, as the case may be.

Investment Banking License An investment bank or group

engaging in investment banking activities licensed by the regulatory authority in the country of origin

A licensed bank or an established financial institution or financial service provider supervised by competent authority

Possess sound track record Any licensed institutions under

approval of Bank Negara Malaysia Any person(s) with the necessary

expertise and experience in investment banking industry.

Labuan Banks : Requirements/Applications

Capital RM10 mil – unimpaired by loss / RM10 mil – branch net working fundsAnnual FeesRM80,000 per annumPhysical Presence Sufficient staff maintained in LabuanDealings through Labuan officeMarketing offices in Kuala Lumpur or Johor Bharu (max 4 staff) allowedAllow co-location anywhere in MalaysiaBranches/full operational office allowed anywhere in Malaysia for Islamic banksApplicationundertaking letter – Head office/parent 3 years business plan3 years audited annual accounts for the immediately preceding applicationletter of consent - home regulatory authority (where applicable)fit and proper persons:

controller or director or CEO ; board of directors of a subsidiary

sound track record, experience, expertise in similar undertaking.Note : For Islamic Banks – to appoint Shariah Supervisory Council / Advisor

Labuan Banks : International presence in Labuan include...

Bank CountryBarclays PLC UKGoldman Sachs USAUBS AG SwitzerlandBNP Paribas SA FranceThe Royal Bank of Scotland Group plc UKDeutsche Bank AG GermanyBank of America NA USACredit Suisse Group Switzerland

JPMorgan Chase Bank National Association USAKuwait Finance Kuwait

Global Incentive For Trading (GIFT)

Background of GIFT Programme Collaboration between Labuan FSA with Performance

Management and Delivery Unit (PEMANDU) and Malaysia Petroleum Resources Corporation (MPRC).

Facilitating the implementation of Oil & Gas Trading Incentive in Malaysia using a Labuan structure under NKEA-OGE

Emulating Singapore’s Global Trading Programme

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GIFT : Status Endorsed by the Authority on 6 Sept 2011 Endorsed by Bahagian Analisa Cukai, Kementerian

Kewangan on 20 Sept 2011 Endorsed by NKEA Steering Committee on Oil, Gas and

Energy, Chaired by YAB Prime Minister on 22 Sept 2011 Approved by YAB MOF on 26 Oct 2011 Launched on 31 Oct 2011 Five companies: Petronas, Dialog Group Bhd, YTL Power

International Bhd , UK-based BB Energy and Rotterdam group, Vitol Trading, were awarded a trading license each.

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Global Incentive for Trading (GIFT) A GIFT of incentives for traders, of specified commodities,

to use Malaysia as their international trading base generating substantial tax revenues

To enjoy GIFT, use Labuan IBFC structure to be known as Labuan International Commodity Trading Company (LITC)

Why Labuan – ready incentive and tax framework, ease of establishment, financial infrastructure, and cost effectiveness

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Structure Specified as a Labuan financial business under Section 86 of the LFSSA Act 2010

(LFSSA) Licensed by Labuan FSA under section 92 of the LFSSA and shall be referred to as

Labuan International Commodity Trading Company (LITC) The licence is valid for a period of five years from the date of approval and may

be reviewed for renewal Existing Labuan companies currently undertaking LITC business are required to

be licensed as LITC by January 2013 (Thru Labuan FSA’s Directive under section 4B LFSA Act 1996)

Activity The LITC business is the trading, in any currency other than Ringgit, of:–

Petroleum and petroleum related products; Minerals; Carbon credits; and Any other commodities as may be approved by Labuan FSA

GIFT

Tax Incentives Corporate tax rate of 3% of chargeable profits, or at the rate of 10% in the case

where the LITC does not comply with qualifying criteria. Other tax benefits e.g stamp duty, withholding taxes, personal taxes 50% exemption on gross employment income of Non-Malaysian professional,

managerial staff including trader with the LITC who earn more than RM15,000 per month

The LITC shall be subject to the rate of 10% in the case where the LITC does not comply with the qualifying criteria.

Qualifying Criteria Minimum company revenue of USD 100 Million per year Local expenses of at least RM 3 Million per year No of start up staff: 3 professional traders

Location Incentive Registered office in Labuan, operational office anywhere in Malaysia

GIFT

Performance

of Financial Industries

Performance of Labuan IBFCSECTOR 2009 2010 2011 ** GROWTH (%)

Companies 7, 423 8,004 8,655 8.1

Banks

• No of Banks• Loans (USD)• Deposits (USD)• PBT (USD)

5918.5b10.2b

249.7m

6119.8b11.6B

536.4m

6024.6b9.5b

404.9m

-1.624.2-15.8-24.5

Insurance

• No of Companies• Premiums (USD)

1491.1b

1691.2b

1811.6b

7.133.3

Leasing

• No of Companies• Assets Leased (USD)

13621.9b

17625.0b

22727.6b

29.010.4

LFX

• Market Cap (USD) 16.6b 17.1b 17.1b 0

Funds

• Size (USD) 9.6b 9.6b 9.4b -2.1

Takaful / Retakaful

• Gross Contributions (USD) 234.1m 296.7m 459.5m 54.9

Note : ** The numbers are subject to changes

Labuan IBFC : Social & Economic Contribution

INDIRECT

• Hotels• Restaurants• Education• Tourism and recreation• Residential properties• Transportation• Services sector, eg

Legal, accounting and management services

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DIRECT• Complement domestic

financial sector through its offer of products and services

• Regional integration through trade and financing

• Critical mass of business stimulates economic activities – Creation of Employment

in Labuan – Direct and Indirect

– Demand for household products and services

– Catalyst for specialized industries which leverages on Labuan‘s natural advantages eg MISR. Oil and Gas

Q & A

Labuan IBFC Inc. Sdn. Bhd.Suite 3A-2, Plaza Sentral,Jalan Stesen Sentral, KL Sentral50470 Kuala Lumpur, Malaysiat. +603 2773 8977f. +603 2780 2077e. info@LabuanIBFC.my

• Hong Kong representative officeSuite 1102 11/FMalaysia BuildingNo. 50 Gloucester RoadHong Kong, SARt: +852 2527 2318f: +852 2520 2938

Contact Us

Labuan OfficeLabuan Financial Services Authority,Level 17, Main Office Tower,Financial Park Complex,Jalan Merdeka,87000 Labuan F.T., Malaysia.t. +6 087 591200f. +6087 428200e. communication@labuanfsa.gov.my

KL Facilities OfficeSuite 2A-06-01, Level 6 Block 2A, Plaza Sentral, KL Sentral,50470 Kuala Lumpur F.T., Malaysia.t. +6 03 2273 8200f. +6 03 2274 8200