It is counting on the introduction of a new regulatory environment to enable it to further develop its own insurance industry – and by association, that of Malaysia, of which Labuan is a part.
As part of this effort to raise the jurisdiction’s regulatory bar, a new qualification regime has been drawn up, with the intention of setting rigorous and consistent standards for insurance brokers active in Labuan and Malaysia who look after international clients. As part of the scheme, these brokers will be listed, on a central database, to enable would-be clients to find them easily.
These measures are being paired with a marketing campaign that aims to ensure that all expats and other potential clients living in Malaysia know that they should do business only with qualified IFAs and brokers while there.
“By the end of next year, every adviser in Malaysia who looks after expat high-net-worth Malaysian clients will have a minimum of the Chartered Insurance Institute’s Certificate in Financial Planning (CFP),” said Stuart Yeomans, group chief executive and partner of Kuala Lumpur-based expat-specialist advisers Farringdon Group, and member of the council of the Labuan International Insurance Association (LIIA), an insurance industry trade group.
“This will effectively pole-vault Malaysia, as a jurisdiction, to being at least the equivalent of the UK, qualification-wise.”
One side effect of this strategy is expected to be the quick end to what is said to be a relatively widespread practice – for now – of financial advisers and insurance brokers “tripping in” to Malaysia to look after foreign clients there, in spite of not holding the necessary Malaysian licences.
A crackdown on such in-tripping brokers has already begun, Yeomans said.
‘Malaysia’s IoM’
Labuan is Malaysia’s offshore financial centre, and although the analogy isn’t perfect, it is often described as being to Kuala Lumpur what the Isle of Man is to the City of London.
It was first designated an “international financial centre” by Malaysia in 1990. Some 18 years after that, the Labuan International Business & Financial Centre was established, overseen by the Labuan Financial Services Authority (Labuan FSA).
The authority has been a key participant in setting up the new Labuan insurance regime, alongside the LIIA, the Malaysian Insurance Institute (MII), and the Chartered Insurance Institute (CII).
Currently, financial planners seeking to practice in Malaysia must pass certain exams giving them a basic qualification, but this is not yet the case in Labuan.
For financial advisers specialising in expatriate clients, Malaysia has been an increasingly attractive market, because of the growing numbers of foreigners who are going there either to work or to live, many under a scheme set up in 2002 known as “Malaysia My Second Home”, which was aimed at encouraging affluent individuals from other countries to settle, providing they met certain conditions.
‘Elevating framework’
Ahmad Hizzad Baharuddin, director general of the Labuan FSA, said Labuan’s decision to raise its regulatory came in the wake of the recent global financial crisis.
Malaysia had not been as badly hit by the crisis as many other centres. Nevertheless, its regulators are set on “elevating the regulatory framework”, Baharuddin, who oversees the Labuan International Business & Financial Centre, said.
“It is about raising our standards to the level where we are equal to the best international standards, so that we are able to make sure that all of our financial systems are sound, stable, and able to provide financial services professionals with a proper and conducive regulatory framework.”
Features of the new standard
The new minimum standard for advisers in Labuan and Malaysia is described as being equal to the UK’s “CFP4” level, and is being accompanied, as it is in the UK, by a requirement for 35 hours a year of continual professional development.
Where it departs from the UK norm, though, is in the fact that it has been developed in a “matrix” format that provides a standard certification for individuals whose qualifications are based on different countries’ exams – for example, Australian, Malaysian, Singaporean or American, as well as British, according to Yeomans.
Another feature is a compulsory three-and-a-half-day “induction” course, the first of which will begin being held this month, which is aimed at all advisers currently practicing in Malaysia.
This is seen as an ongoing scheme that ultimately will aim to reach all new foreign IFAs and insurance brokers, to ensure they are up to speed on such topics as the Malaysian tax system, anti-money-laundering rules, and the full range of investment products available in the Malaysian market to foreign clients.
A half day of ethics training is included as part of the programme, as it has been drawn up, and all advisers – who will, as part of the new regime, be required to join the CII and MII – as a matter of course be expected to comply with the CII’s ethics code.
According to Yeomans, the induction course is a step beyond what most if not all other jurisdictions currently offer.
KL unveils FC plans
Labuan’s efforts to give its insurance industry a boost come as Malaysia is rolling out plans for a new, $8bn financial centre complex, in Kuala Lumpur. At the end of July, it unveiled details of what is being called the Tun Razak Exchange – named after the prime minister’s father, who was also prime minister – on 70 acres of land near the capital’s Petronas Twin Towers building.
Lodin Wok Kamarrudin, chairman of the state-owned development firm behind the project, explained the government’s thinking, as the plans were revealed to the press at the end of July: “We want to have a new business and financial hub that brings in the east and west together. One that can grow both Islamic and conventional finance.”
Although not, for now at least, in the top 10 global financial centres, Malaysia has been attracting attention, particularly after an initial public offering of a former state-owned palm oil producer in June became the world’s second-largest IPO of the year, after Facebook.
In the most recent Global Financial Centres Index, a ranking of world financial centres compiled twice annually by London-based Z/Yen Group, Kuala Lumpur stood in 35th place, ahead of Edinburgh, Qatar, the Cayman Islands, the Isle of Man, Dublin and Brussels.
This was three places ahead of its ranking six months earlier, and up from 47th place in three years earlier. Labuan is not on the list, which includes only the top 77 jurisdictions.
