Develop and Strengthen the Capital Market, E-Commerce and the Ancillary Activities

1. Recommendation 1 : Enhance the Labuan International Financial Exchange (LFX)

   The LFX was officially launched on 23 November 2000.  It is a global exchange that provides listing and trading facilities for a wide range of financial and non-financial products (as well as Islamic products), including mutual funds, bonds, derivatives, insurance-linked products and, possibly, intellectual properties. There are abundant opportunities for offshore players in the LFX including to provide custodial, depository, clearing and trustee services, other than being Licencee as listing sponsors and trading agents.  The LFX can be a major exchange capitalising on its many advantages including it being a one stop financial exchange, its extensive use of multimedia and internet, simplicity in its operations, customer orientation, and competitive listing fees. 

   At its early stage of operations, the support and participation of resident companies is important not only to promote market activity and add liquidity, but also to build international confidence and interest in the LFX.  In this regard, domestic securities firms should be allowed to participate in the LFX, either as a listing sponsor or trading agents. Malaysian companies should give priority to the LFX when they plan to list their foreign bonds or other securities in international bourses.

   Given its international accessibility, the LFX can also play a regional role by offering its platform to be a bourse for regional countries which do not have exchanges of their own.  At the same time, the LFX can be used as a window for Malaysians wishing to invest abroad. The LFX can be a window for domestic institutions to expand their international business activity.  The availability of a wide range of products and services will contribute to the overall efficiency of the Malaysian economy.

2. Recommendation 2 : Enhance the e-commerce gateway (ECG)

   The IOFC needs to leverage the Internet to effectively and efficiently reach out to the global market place. The ECG, that was launched on 23 November 2000, is a financial portal allowing access to information on products and services, including real time pricing, available in the IOFC. With this electronic infrastructure and the conducive business environment in Labuan, global e-commerce operators are encouraged to set up domicile in Labuan. In time, this portal will be developed into a full-fledged e-commerce site with a focus on Islamic products, bringing together a variety of third party providers of Islamic services. Other businesses and other financial services activities such as a clearing-house for financial payments, a marketplace for financial products and backroom operation activities will be encouraged.

   The ECG can also be the means for submission of statutory documents and statistical information to LOFSA, reducing the flow and handling of physical documents as well as improving the speed of processing.

   Due to its wide reach and multimedia capabilities, the ECG can also be used as a marketing tool. Information on products and services can be widely disseminated, and easily accessed by market players. However, like traditional forms of business, e-commerce needs to be appropriately regulated.  In the case of Labuan, the legislation for such activity should neither be too restrictive nor be too liberal.  There has to be a balance between too much control which will discourage businesses and the lack of control which may allow unfavourable activities to be conducted.

   It is therefore opportune to revive the concept of twinning Labuan with the Multimedia Super Corridor (MSC). Under this concept, MSC companies may enjoy MSC benefits in Labuan, while Labuan offshore companies can also capitalise on the MSC facilities. By this, Labuan could enhance the usage of its presently underutilised state-of-the-art technology infrastructure. Given that the LFX has offered itself as a listing and trading platform for MSC companies, this link can be extended to other Labuan institutions under the twinning concept.

3. Recommendation 3 : Maximise potentials of Labuan IOFC by developing other complementing economic measures

   The development of the IOFC to drive the island has to be complemented by similar developments in other sectors.  This will maximise the potentials and synergies that the IOFC has with other economic sectors. In this context, the following should be implemented:

   1. Labuan as a centre of educational excellence

      The quiet and conducive atmosphere of Labuan’s pleasant surroundings, coupled with the availability of excellent high-tech communications facilities, low operating costs and skilled workforce, gives the island the potential to be a choice education center. Local and foreign learning institutions should be encouraged to set up branches on the island. Labuan is already home for Universiti Malaysia Sabah-Kampus Antarabangsa Labuan that specialises in offshore finance and multimedia with capacity of accommodating 6,000 students. To fully develop into a world-class centre of educational excellence, strong study alliances with the private sector would be needed. Training institutions such as the BIMB Institute of Research and Training (BIRT) could provide valuable input in designing the syllabus for Islamic banking studies.

   2. Labuan as a tourist centre and as health plus convalescence resort

      Promoting tourism industry in Labuan would have positive spill over effects on the local economy and the offshore industries. Most other offshore centres evolved from a successful tourism industry. In the case of Labuan, the island was made an IOFC first, and now the move to successfully develop the tourism industry.  Labuan as a retiree paradise is in line with the planned building of a 18-hole golf course and retirement homes. Retirees, from the region and other parts of the world, will be attracted to set up homes in Labuan.  A Retirement Package Incentive, covering PR status, can be offered to high net worth retirees.

   3. Labuan as a free-trade zone

      Another measure to attract more high value added industry that requires intensive manpower but does not cause pollution to the environment, is to introduce the free tax status to identified industries, and free trade zone status to be accorded during a promotional period of two years, on a first come first serve basis.

   4. Labuan as a Meeting, Conference, Exhibition Centre (MICE)

      Labuan has all that it takes to be a MICE, with its state-of-the-art telecommunication facilities, excellent conference centre, world class hotels, institutions of higher learning and major key players.  Training institutes such as Malaysian Insurance Institute (MII), Institut Bank-bank Malaysia (IBBM), BIRT should be encouraged to hold their seminars and courses in Labuan to increase awareness of the IOFC.

   5. Accessibility

      Most essential is accessibility to the island should be enhanced.  Labuan should have more flights from Kuala Lumpur, Kota Kinabalu and Kuching and from other regional capitals such as Singapore, Hong Kong, Tokyo, Taipei, Shanghai, Seoul, Manila and Jakarta. In tandem with its role as the centre for offshore business, Labuan should have an “open sky” policy to allow for increased access.

Approach to Implementation

The development of the IOFC is the long-term agenda of the Malaysian government. The implementation of the above recommendations would be pursued according to the broad long-term plan.   The government will work with the industry to provide the necessary support needed for this process.  The government will continue to be responsive and adopt market driven, consultative and pro-active approach in developing the IOFC.