The midshore financial centre that is becoming the digital assets capital of Asia

There are offshore financial centres and there are onshore financial centres. And there is the Labuan International Business and Financial Centre (IBFC) in eastern Malaysia, which styles itself as a “midshore” financial centre. The neologism is well-chosen, for the IBFC enjoys a special status within Malaysia. It has its own regulator, its own legal system, its own exchange, and it is not subject to the exchange controls that govern capital flows into and out of the mother country. Since its foundation in 1990, the IBFC has attracted more than 900 businesses, mostly drawn from the wealth management, funds and insurance industries. But it is now home to crypto-currency exchanges and tokenisation entrepreneurs, and is fast-becoming an important digital financial centre even without resort to the usual regulatory “sandbox.” Nor is there a financial centre anywhere in the world whose leadership is more convinced that an international financial centre can contradict the cynics and use digital finance to increase financial inclusion. Dominic Hobson, co-founder of the Future of Finance, spoke to Farah Jaafar, chief executive of the IBFC.

Questions being asked

1. The IBFC is now 30 years old. How does the outcome today compare with the initial plan in 1990 (particularly in terms of business attracted)?

2. What is the legal and regulatory status of the IBFC within Malaysia?

3. Asia is now the workshop of the world, with massive volumes of physical trade taking place throughout the region and with the rest of the world. What part does a financial centre like the IBFC play in facilitating that physical trade?

4. Are (a) trade finance and (b) commodity trading among the activities the IBFC seeks to attract?

5. There are 100 IFCs in the world. How does the IBFC differentiate itself?

6. Are there tax advantages (corporation tax, turnover taxes, capital taxes, withholding taxes) to being based in the IBFC?

7. The IBFC describes itself as “midshore” rather than “offshore” or “onshore.” What does that mean in practice?

8. Financial centres need professional advisers such as accountants, lawyers and actuaries too. Does the IBFC attract them?

9. How important is the geographical location?

10. The Labuan legal framework is English common law – like Singapore. How important is Singapore as a competitor?

11. Labuan has a separate regulator from Malaysia (the Labuan FSA). How does it work with the Securities Commission and the central bank?

12. How does the FSA work with the IBFC – particularly in terms of striking the balance between regulation and innovation?

13. Malaysia has exchange controls, while Labuan does not. How does Labuan work with the rest of the Malaysian economy – do you do foreign currency business only?

14. What proportion of the business the IBFC attracts is domestic, i. e. from within Malaysia?

15. How digital is the Malaysian economy – and does its level of digitisation matter to you?

16. What is the value to the IBFC of the LFX – and to Bursa Malaysia?

17. Can you explain what a (a) money broker licence and (b) a credit token licence entitle the holders to do? Are there other types of licence?

18. Labuan has identified digital finance (broadly conceived) as an opportunity, but the IBFC uses the term “digital” rather than “FinTech.” Is that deliberate?

19. A lot of financial centres favour regulatory “sandboxes” but the IBFC has chosen a different path: comply with existing regulations. How attractive is that proving to FinTechs?

20. How is the IBFC attracting crypto-currency brokers, exchanges and funds?

21. Bursa Malaysia and the LFX have experimented successfully with tokenised bonds. What is happening now?

23. Labuan also hosts the Fusang exchange, which aims to attract security token issues (and was poised to launch a tokenised bond with CCB a year ago). What is the IBFC view of the potential of security and asset-backed tokenisations?

23. One surprise was that the bonds-on-blockchain experiments saw a continuing role for a central securities depository (CSD), when most such experiments dispense with a CSD. What is the CSD needed for?

24. Malaysian law has encouraged crowd-funding, which has in a sense helped to give birth to ICOs and DeFI. What was the attitude of the IBFC to ICOs and are you open to DeFi businesses?

25. Bank Negara Malaysia is exploring a central bank digital currency (CBDC) and the use of CBDCs for cross-border payments. What opportunities does this represent for the IBFC?

27. The IBFC also hosts plenty of conventional financial businesses, starting with insurance. What is the attraction of the IBFC for insurers?

28. Have you attracted many InsurTechs?

29. Funds are another focus for the IFBC. What sorts of funds are you attracting and what are the incentives to come to the IBFC?

30. What brought the ASEAN Infrastructure Fund to Labuan?

31. Wealth management and private banking are a third focus for the IBFC, attracting, among others, the innovative FINTECH BANK. Is wealth management a major growth area for IBFC?

32. How important is Islamic finance to the IBFC – and how do you attract it?

33. The idea that international financial centres can contribute to financial inclusion is counter-intuitive, yet the IBFC has published a paper saying exactly that. How can you help?

34. Is the IBFC enthusiastic about digital identities?

35. Does the IBFC support the concept of Open Data (i. e. consumers owning their own personal data, using it to shop around and companies having to pay to use it)?

36. How does the IBFC market itself abroad?

37. Does the IBFC see any advantages in working with other international financial centres?

38. What would you like the IBFC to look like in ten years’ time?