Innovative Financial Services

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Innovative Financial Services

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Introduction of Innovative financial services

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For the past two years, the Financial Technology (FinTech) industry has gained immense popularity and are quickly becoming more and more mainstream, thanks to increased global adoption. With the development of blockchain and other innovative technology, the traditional functions provided by banks, financial institutions, and corporations are being threatened and challenged by platforms that are able to make use of this technology to lower transaction costs, increase security, efficiency, and reliability.

 

For example, Labuan is an international financial center with its own business, tax and financial services legislation and its own financial services regulator, the Labuan Financial Services Authority (“LFSA”). Among the International Financial Centers in the Asia Pacific, Labuan is perhaps one of the most interesting low-tax options for doing business internationally. For global businesses with Asian connections looking for a pro-business and low tax environment, there may be no better place to set up your company. You can set up a tax resident entity and pay as little as 3% of your net profit in taxes per year.

 

Innovative financial services

As an International Financial Center, Labuan is keen to attract Fintech companies from all around the world, including those involved in distributed ledger technology, blockchain, and digital currencies to set their base in Labuan, and the regulator is taking the forward-looking steps for this to happen.

Labuan IBFC opts for a more market liberal approach for proposed IFS businesses. Labuan entities are allowed to undertake these businesses subject to them complying with the 

AML/CFT1 regulations and market conduct requirements, especially for those whose businesses are governed by LFSSA2 and LIFFSA3.

Unlike other markets which choose to insulate or contain the IFS business in different regulatory platforms (e.g. sandboxes or incubators) for observation and experimental purposes, Labuan IBFC believes that IFS start-ups need to operate in the actual, open international market. This is to inject business pragmatism in IFS undertakings so that they can better adapt and gain traction in the market.

 

Crypto Exchanges

LFSA is regulating Crypto Exchanges under the Labuan Money Broker License, allowing them to provide both fiat and crypto wallets, support fiat and cryptocurrency trading and transactions. Requirements for compliance are very reasonable, includes but not limited to the following

  • Comprehensive AML/CTF Policies
    The exchange will need to have the appropriate measures and system to manage AML/CTF risks.
  • Adequate Operating Capabilities
    The exchange operator will go through an assessment process by the LFSA to make sure you have adequate capital, the appropriate internal policies, and controls, including the protocols and systems for cybersecurity risk management and governance expertise.
  • Experienced and Qualified Management Team
    LFSA will assess the management team background to ensure it is formed by fit & proper persons.
  • Minimum Paid Up Capital
    The minimum capitalization is relatively low, RM 500,000 (approximately USD 120,000), and the entire licensing process takes about 4 to 6 months.

 

Token Offering


LFSA is regulating Token Issuers under the Labuan Credit Token License. This will allow companies to be fully regulated in launching their own Token. Requirements are not limited to but as follows:

  • Adequate Capital with Track Record
    To have a minimum paid up of at least USD 150,000, and the business must have a 3-year track-record or, if the company is new, it must have an innovative business model within the Fintech or Blockchain space.
  • Comprehensive AML/CTF Policies
    The company will need to have the appropriate measures and system to manage AML/CTF risks.
  • Adequate Operating Capabilities
    The exchange operator will go through an assessment process by the LFSA to make sure you have adequate capital, the appropriate internal policies, and controls, including the protocols and systems for cybersecurity risk management and governance expertise.
  • Experienced and Qualified Management Team
    LFSA will assess the management team background to ensure it is formed by fit & proper persons.

 

Crypto Fund

Establishing a fund that invests in cryptocurrencies is also possible. There are mainly two types of funds: private and public. These Funds can be structured as a Limited Company, Limited Liability partnership or protected cell company – with the Limited Company Private Funds being the most common. Some salient features of a Private Fund are as follows:

  • The appointment of a fund manager, administrator or custodian is not mandatory.
  • Private funds don’t need to obtain a license – they just need to file a memorandum to the LFSA for approval.
  • They can be open or closed-ended, but its shares cannot be offered to the public.
  • For private funds with less than 50 investors – a minimum RM 250,000 (about USD 60,000) per investor applies.
  • Those with more than 50 investors – requires RM 500,000 per investor (about USD 120,000).

All in all, both private and public must ensure compliance with the AML/CTF regulations and guidelines provided by the LFSA.

 

Banking for Crypto Startups

Market players in the industry have been facing issues with banking as it has become difficult not only for cryptocurrency startups but also for other businesses operating via offshore companies. It’s been getting progressively harder for offshore companies to get strong transactional ‘onshore’ accounts.

There are more than 50 licensed banks in Labuan. Most of the largest banks in Singapore, Hong Kong, Europe, and the US have a branch in Labuan. Setting up a Labuan entity will give you access to top-notch banking options – with a comprehensive offer of corporate banking services, in both Malaysia and Labuan, and even Singapore.

This is even more important for companies operating in the Cryptocurrency space. Non-regulated cryptocurrency companies face considerable challenges in getting a bank account. Labuan has a similar stance on this matter. From the banks’ perspective, a non-regulated crypto business poses a high money laundering risk.

However, Labuan has an advantageous legal framework with which companies can legalize their crypto activity, and it will be under the scrutiny of the LFSA. Banks will be much more willing to accept these Licensed companies as their clients.

Thus, being licensed in Labuan will not only provide you a certain degree of regulatory certainty but will also give you access to top regional or even global banks.