Labuan financial services in 2024

For over a decade, Healy Consultants has assisted our Clients to establish low-tax regulated financial services companies regulated by the Labuan Financial Services Authority in sectors including insurance, asset management, forex and securities brokerage, commodity trading and other services.

• Labuan Forex (Money Broking) Licence

  

  • Labuan money broking licences are required for businesses that provide foreign exchange brokerage services, i.e. earning commission for buying and selling currencies on behalf of their clients;
  • Money brokers do not have authorisation to trade currency as principal. Consequently, Labuan moneoy brokers require a liquidity provider to act as a market maker;
  • Licensed businesses can provide a speculative or leveraged foreign exchange service for their customers;
  • Labuan money broking business is meant to serve institutional investors and high net-worth individuals. Thus, it is expected to impose a maximum leverage limit of 100:1 on its clients’ trading transactions that would translate to a minimum of 1% margin deposit to enable the opening of a trade position;
  • Our Clients with a Labuan money broking licence can use their own software platform for the service, or use technology provided by a third party;
  • Money broking businesses must have a compliance officer and suitable policies and procedures in place to prevent money laundering and terrorist financing;
  • It is possible to outsource the compliance function to a third party subject to LFSA approval;
  • As the persons in controls, directors and principal officer of Labuan money broking business, our Client should meet the fit and proper person requirements as specified in Guidelines on Fit and Proper Requirements issued by Labuan FSA;
  • The Labuan FSA commits to providing feedback on money broking licence applications within 21 days;
  • Labuan money brokers may deal in all currencies except for Malaysian ringgit. They are unable to act for clients located in Malaysia unless that client is a licensed money broker or bank on the mainland;
  • Although all trades must be processed through Labuan, licensed money brokers may have marketing offices in either i) Kuala Lumpur or ii) Johor for an additional government fee of US$2,500 per year;
  • Our Client should maintain an operational office in Labuan, which should only be used for money broking business purpose only and must be appropriately furnished with office equipment;
  • Licence costs are US$1,500 per year, with a MYR500,000 (approx. US$125,000) capital requirement;
  • Visit Healy Consultants’ blog for more information on starting a foreign exchange business in Labuan;
  • Healy Consultants’ average total engagement fee for this financial service solution is US$31,025. Click this link to view a detailed invoice:

    

• Securities License for Brokerage, Advisory and Administrative Businesses

  • Any company that intends to i) provide investment related advice or administration services related to securities for the purpose of investment, ii) deal in securities or iii) provide other activity as may be specified by Labuan FSA is required to hold a Securities License;
  • Labuan securities licensees can provide a wide range of services related to investment products including shares, bonds, and fund units;
  • “Dealing in securities” is permitted by this licence, allowing securities licensees to act as an investment broker;
  • In order to deal with securities listed on an exchange, the Labuan securities licensee must be authorised by that exchange. The Labuan International Financial Exchange requires brokerages to register as a “trading agent”, for which it charges i) an application fee of US$1,000 ii) an initial approval fee of US$10,000 and iii) an annual fee of US$5,000;
  • To obtain a securities licence from the LFSA, there is an annual licence fee of US$1,500;
  • To be eligible to apply for the Securities License, the Company must:
    • Have a management team consisting of an individual who holds a relevant degree or professional qualifications to carry on activities of a securities licensee; or
    • An individual with a least a diploma and 3 years of relevant capital markets experience;
    • Have a minimum capital of RM150,000;
    • Maintain a professional indemnity insurance policy, with coverage of at least RM1 million or its equivalent in any foreign currency throughout its operations;
    • Have a registered office in Labuan and ensure that the business must be carried on in, from or through, Labuan.
    • Submit audited financial statements to the Supervision and Enforcement Department within six months of the closure of each financial year.
  • Malaysian anti-money laundering regulations apply to Labuan securities licensees;
  • A securities license holder will be governed by the following legislation:
    • Labuan Financial Services and Securities Act 2010;
    • Labuan Islamic Financial Services and Securities Act 2010;
    • Labuan Companies Act 1990;
    • Labuan Business Activity Tax Act 1990.
  • Healy Consultants’ average total engagement fee for this financial service solution is US$20,150. Click this link to view a detailed invoice:

    

• Mutual Fund Licence

  • Any collective investment scheme in Labuan is considered to be a mutual fund;
  • Labuan has two categories of mutual fund: public and private;
  • Mutual funds may be structured as i) a Labuan company ii) a foreign company iii) a partnership iv) a protected cell company v) a foundation or vi) a unit trust;

  Private Funds

  • A mutual fund is treated as a private fund under Labuan law if i) it has fewer than 50 investors, each of whom has invested at least MYR250,000 in the fund or ii) all of the fund’s investors have contributed at least MYR500,000. In the latter case, there is no cap on the number of investors;
  • Private Labuan funds are therefore appropriate for funds normally invested in by large institutions and high-net-worth individuals, such as private equity funds, venture capital funds, or even hedge funds and real estate funds;
  • Labuan does not licence private funds. Instead, an annual notice must be given to the LFSA, comprising the fund’s prospectus or other offering document;
  • The LFSA charges a US$600 annual fee for receipt of a private fund notification;
  • The Labuan Financial Services and Securities Act does not require private funds to segregate client assets with a custodian or trustee;

  Public Funds

  • Public funds can be offered to more investors, including members of the general public (subject to local marketing rules), and are therefore more flexible. However, they come with higher regulatory requirements;
  • A public fund is appropriate for funds that deal in traditional assets such as stocks and bonds, whether actively or passively managed;
  • The manager of a public fund in Labuan must hold a fund management licence (see below);
  • Public funds also require approved trustees, administrators and custodians;
  • Registration with the LFSA is necessary prior to commencing operations. This registration requires an annual fee of US$600;
  • Where a protected cell company structure is used, the core has an annual registration fee of US$1,500, with registered cells paying US$600/year;
  • Prior to fund registration, the LFSA will review i) the fund’s constitutional documents ii) the composition of the fund’s management body iii) the fund manager’s profile and audited accounts iv) the fund’s prospectus (which can be presented in a draft form);
  • Investors must receive reports at least every six months. The reports must include i) a portfolio valuation report ii) the actual portfolio mix/asset allocation of the fund iii) the net asset value of the investment iv) independent verification of the fund’s assets (e.g. by the administrator and/or custodian) and v) other investor-relevant information on the fund’s performance;
  • An annual audit is required, along with compliance with Malaysian AML/CFT laws.

• Labuan Fund Management Licence

  • A fund management licence is required only to manage a public mutual fund in Labuan. Managers of private funds do not need this licence to manage a Labuan fund;
  • Eligibility requirements are relatively low, allowing a holder of a relevant degree to apply for a fund management licence. Diploma holders with at least three years’ relevant experience and fund managers already licensed in a member country of IOSCO are also eligible;
  • Fund managers of public funds must have a written agreement with each investor, updated annually with respect to the investor’s i) investment objectives ii) risk profile and iii) investment restrictions (if any);
  • Fund managers of public funds must have a written agreement with each investor, updated annually with respect to the investor’s i) investment objectives ii) risk profile and iii) investment restrictions (if any);
  • The fund must be managed from Labuan, but marketing offices are permitted in Kuala Lumpur or Johor Bahru;
  • The minimum capital requirement for a Labuan fund manager is MYR300,000, plus 0.2% of any assets above a MYR150million assets under management threshold (~US$36million);
  • The operational requirements for a Labuan fund manager are similar to those in other jurisdictions, requiring i) annual audits ii) segregated client assets iii) a business continuity plan iv) a compliance and internal audit function v) an AML/CFT policy and compliance regime, and vi) adherence to Labuan reporting standards;
  • Labuan fund managers benefit from low ongoing licensing costs of US$1,500/year. Having a marketing office adds an additional US$2,500 annual cost.

• Labuan Payment Systems Operator (PSO) Licence

  • The PSO licence is granted by the Labuan FSA. Licensing applications are processed by the FSA within three months;
  • After the licence application is approved, your Labuan entity will be able to legally offer brokerage services including i) transferring funds from one bank account to another ii) providing payment instrument network operation, and iii) providing clearing and settlement services for payment instrument issuers and merchant acquirers;
  • Only local entities and branches can apply for a licence. Non-resident entities cannot apply. Consequently, most of our Clients also engage us to register a simple, practical Labuan LLC;
  • See this page for more information on the Labuan PSO.

• Labuan insurance

  1. The Labuan FSA offers a wide range of licences to traditional insurers and insurance-related businesses, as well as to Sharia-complaint takaful businesses. Labuan insurers are regulated under the terms of the Labuan Financial Services and Securities Act 2010;
  2. Insurance companies regulated in Labuan may only serve international customers and are restricted from doing business with Malaysian residents or with respect to assets situated in Malaysia. However, they may provide reinsurance to domestic Malaysian insurers. All Labuan insurance businesses must be members of the Labuan International Insurance Association and prepare audited accounts to submit to the LFSA annually.

  • General insurance business

    • This is the regime under which the LFSA grants insurance licences for non-life businesses;
    • Insurers regulated under this heading can provide medical insurance, travel insurance, home insurance, or provide cover for other risks such as those arising in shipping, aviation, or other fields;
    • The minimum capital for a general insurance licence in Labuan is approximately US$1.75 million (7.5 million Malaysian ringgit);
    • All general insurance businesses in Labuan require substance on the island, maintaining an operational management office there whose staff have adequate expertise in the insurer’s business;
    • General insurance businesses must also appoint an underwriting manager licensed in Labuan;
    • The annual licence fee for this kind of insurance business is US$15,000.

  • Labuan life insurance business

    • This licence allows Labuan-registered companies to offer life insurance to customers outside of Malaysia;
    • The operational requirements for Labuan life insurers are much the same as those outlined for non-life businesses above, requiring an operational management office, a licensed underwriting manager, and 7.5 million MYR of capital;
    • The annual licence fee for a life insurance company in Labuan is US$15,000.

  • Labuan reinsurance business

    • Reinsurers in Labuan are subject to higher capital requirements, needing 10 million ringgit (~US$2.35 million) of working funds to do business;
    • Labuan reinsurance companies can provide cover for both life and non-life lines of insurance. Unlike other Labuan insurers, Labuan reinsurers may insure domestic Malaysian risks;
    • The licence fee for Labuan reinsurers is US$15,000, and these businesses require a Labuan operational management office along with a licensed Labuan underwriting manager.

  • Captive insurers in Labuan

    • Labuan structures are also available to businesses seeking to establish a captive insurer to underwrite their group risks;
    • Although Labuan captive insurers are subject to the same operational requirements as commercial insurers, the capital requirements and licence fees are significantly lower;
    • Captive insurance companies owned by a single entity, a group, or multiple unrelated entities require only 300,000 MYR of capital (~US$71,000). Rent-a-captive structures and captive insurers set up as protected cell companies (PCCs) require 500,000 MYR of capital;
    • Licence fees for single captives, group captives, multi-owner captives or a cell of a protected cell company are only US$3,000 per year. Subsidiary rent-a-captives are the cheapest option, at US$1,000 per year (against US$4,000 for a master rent-a-captive). A core protected cell company used as a captive insurer requires an annual licence fee of US$9,500.

  • Takaful structures

    • To provide the certainty required by Sharia principles, the payment structure of a takaful is different to that of western insurance policies. All the same, it performs the much the same purpose: general takafuls pool and invest money that is used to guarantee members against certain losses (much like non-life insurance), while family takafuls provide benefits for a policyholder and his or her family;
    • From a licensing and regulatory perspective, takaful businesses are otherwise similar to general insurance and life insurance businesses in Labuan, requiring 7.5 million MYR of capital, a US$15,000 annual licence fee, a local operating team and a licensed underwriting manager;
    • Retakafuls, the reinsurance equivalent for takaful structures, are subject to the same licensing and capital requirements in Labuan as for reinsurance businesses.

  • Labuan insurance broker licence

    • Labuan insurance brokers arrange insurance and reinsurance contracts with Labuan-licensed insurers and reinsurers. Companies undertaking licensed insurance brokerage in Labuan are also permitted to provide financial planning services;
    • Unlike many types of business in Labuan, licensed insurance brokers are allowed to provide services to Malaysian residents. However, this is restricted to providing financial planning services high-net-worth individuals and does not extend to selling insurance policies to these clients;
    • Labuan insurance brokers may not act as a broker for insurance policies or takaful participations provided in mainland Malaysia;
    • Insurance brokers must appoint an insurance manager licensed in Labuan and have an experienced operational and management team in Labuan;
    • The capitalisation required by insurance brokerages in Labuan is 300,000 MYR, with an annual licence fee of US$6,500.

  • Labuan insurance manager licence

    • Insurance managers provide management and administration services to other insurance-related businesses in Labuan and abroad (as permitted by foreign regulations). It is mandatory for all Labuan insurance brokerages to appoint a licensed locally-licensed insurance manager, giving a built-in market for these companies;
    • As with other insurance-related businesses in Labuan, insurance managers require local substance in the form of an operational management team;
    • Labuan insurance managers need 300,000 MYR of capital and must pay US$6,500 in annual licence fees.

  • Insurance underwriting licence in Labuan

    • Underwriting managers in Labuan can provide underwriting and general administration services to Labuan insurers;
    • The other licensing requirements are the same as for other insurance-related businesses such as insurance managers and insurance brokers. This means that Labuan underwriters need an operational management office in the territory, 300,000 MYR of capital, and a US$6,500 annual licence fee.