Promote and Diversify Further the Financial Players and Activities in the IOFC.

1. Recommendation 1: Develop an active International Offshore Financial Centre for Malaysia.

   Malaysia needs an active offshore financial centre that is able to support the increasing demands of the domestic economy.  Expansion of the local businesses abroad for instance requires a complete chain of financial services ranging from advice on the investee company, place of business to financing the project in foreign currency.  Demands for assistance in arranging financial swaps and issuance of PDS are becoming more prevalent in the growing Malaysian economy.  Offshore financial institutions also provide competition to the on-shore banks.  In this regard, the offshore financial institutions play an important complementary role in the Malaysian financial system.  Measures to strengthen the position of the IOFC will continue to be taken as follows:

   1. Offshore banks and offshore insurance companies would continue to have the rights of first refusal to offshore business services  required by Malaysian corporates, financial institutions and the Government.  These entities on the other hand are expected to make their presence felt in the local industry by providing competitive and efficient services and products; and
      

    

   2. In managing the transition to greater international competition envisaged in the liberalisation of the Malaysian financial markets, priority will be accorded to international competitors who are based in Labuan and have the necessary skills, manpower and systems located in Malaysia.  This will be done gradually, as has already taken place through the ringgit loan and investment windows that have been made available to Labuan offshore banks.

    

2. Recommendation 2 : Review existing rules and regulations to facilitate expansion in the scope of core businesses.

   New business would be explored and developed to widen the scope of offshore business in the IOFC. In this regard, a review will be made on the existing rules and regulations, which is deemed to impede the progress and further development of the offshore business.  The legislation needs to be reviewed to facilitate new businesses, and at the same time allow the offshore service providers to maximise their capabilities and expertise to expand their businesses. The areas that can be considered are:

   1. Incorporation or registration of various other types of offshore companies, which can be used for administrative and operational efficiency purposes, by both non-residents and residents.  These include external companies, a company that is incorporated in one jurisdiction but carries on business in another jurisdiction, and managed foreign domiciled companies, the administration of companies that are registered outside the IOFC;

    

   2. The trust companies in the IOFC are domestic companies incorporated under the Companies Act 1965, and are subject to domestic rules and tax.  The domicile status of Labuan trust companies needs to be changed to that of offshore to facilitate their dealings to encourage foreign trust companies to be based in Labuan.  An immediate impact from the increase in the number of trust companies to the local economy would be on employment, given that trust companies are more labour-intensive than the other industries. In the interim, trust companies in Labuan are allowed to manage trust companies of other jurisdictions in order to expand the horizon of their business, as well as to maximise the available administrative skills and experience in Labuan;

    

   3. In the area of insurance, the IOFC can be developed as a centre for innovation of new and sophisticated insurance products and services. The policy direction for the future development of the offshore insurance industry includes developing the IOFC as an active reinsurance and captive centre, including rent-a-captive business. In this regard, the number of insurance companies, knowledge, skills and expertise needs to be enhanced;

    

   4. There is a need to rationalise the roles of offshore banks to fully complement their activities with that of the domestic financial market. The critical mass that has been attained in the offshore banking industry can be further enhanced through the entry of more banks, both conventional and Islamic. Financial institutions with sound track record, accorded with a good credit rating by acceptable rating agencies, supervised by a relevant regulatory body and that conforms to the accepted standards of international practices will be encouraged to set up their operations in the IOFC.  There will not be any compromise on quality and prudence, as the entry to the IOFC will continue to be restricted to sound and well managed institutions; and

    

   5. Facilitate the setting up of its treasury centres for multinational corporations, and financial institutions, particularly for the offshore banks.

    

3. Recommendation 3 : Adopt a consultative and market driven approach to create a conducive tax and business environment.

   The IOFC is not designed to be a tax haven.  The conducive tax environment in the IOFC reflects its efficiency in lowering the costs of operation for offshore companies. Continual review and assessment of tax structure will be done to ensure Labuan remains competitive and attractive. Towards this end, the Labuan Tax Advisory Council, a consultative body comprising tax experts, practitioners and regulators has been formed. It is a smart partnership that will maximise the tapping of expertise and knowledge for the positive development of the IOFC.

   This smart partnership concept will also be extended to cover the development of businesses and products for the IOFC. A Business Consultative Council, similar in nature to the Consultative Council of Labuan that has already been established will also be set up.  Industry leaders and individuals with wide experience will be invited to be members of the business council. 

4. Recommendation 4 : Benchmark against the best to maintain the low-cost operating environment in Labuan.

   In order to be competitive, the IOFC has to maintain its low-cost operating environment which it enjoys today.  In this regard, benchmarking against the leading IOFCs around the world in various areas of business will be established to ensure that the IOFC will always be competitive, especially in terms of pricing and cost of doing business.  A study showed that the cost of operation in Labuan is one-third of the other financial centres in this region.  Labuan should strive to further improve its competitiveness to attract more players and investors to the IOFC.

5. Recommendation 5 : Establish a well-balanced regulatory policy and supervisory framework.

   Offshore centres are always under intense international scrutiny to comply with best standards of prudential supervision and regulation.   While the supervisory practice and legal framework in the IOFC is in accordance with internationally accepted standards, these need to be continually assessed and upgraded to ensure that they remain in line with the latest international supervisory requirements.  At the same time, there is need to balance between conducive and stringent regulatory environment. The necessary supervisory structures have been set up within LOFSA to conduct onsite inspection to preserve the IOFC as a reputable offshore centre conducive to quality players and genuine investors. Furthermore, the legislation on money laundering is now being finalised to safeguard the IOFC from being used for such activities.