Offshore Forex brokers trend grows: Labuan becomes FX hub

March 27, 2019 | AtoZ Markets - The beginning of the new year has shown up until now the offshore business as the new haven for Forex brokers, where the regulatory drive sounds to be softer than how it is with the regulators on the ground.

The idea sounds to appeal to the Malaysian financial sector, where the latter has just joined the offshore Forex regulatory margin, offering a broker licence on the island of Labuan.

The news comes as an advancement for Malaysia, in the light of the tougher grip regulators have over the industry, with no looser domain looming in the horizon.

The latest in that regard was that the island of Vanuatu imposed new strict conditions on Forex brokers, where the regulators of the island required the managers of the Forex brokerage firms operating in the island to reside there for not less than six months a year in person, that is on the top of the condition that the director should be local.

Russia had taken a similar step in creating a tax-free zone for trading digital assets, which was said to come with mild regulations, is reportedly entering its third stage of examination by the Russian Ministry of Economic Development, as per reports.

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Labuan Forex offshore regulations sound better

In return, the eastern Malaysian island follows the offshore Forex regulatory trend and requires the brokers to have an office of their companies in the it, which must have as well two employees at least. However, the Labuan Financial Services Authority (Labuan FSA) did not restrict the CEO or the director to be based in the island.

As per financial estimates, a broker needs a minimum of 100,000 MYR ($25,000 USD approx.) per year, to maintain its presence on the island, and that is aside from the 3% the company has to pay in tax on its profits.

1:100 is the leverage limit the broker has on all the instruments traded via subsidiary, with access to banking in consideration for the future, as per media reports.

Labuan FSA upgrades its level of financial services

Mr Ian Lim Teck Soon, Group Chief Underwriter of The Archipelago Group; a leading InsureTech Driven Ecosystem Insurance Company in Asia, has shared his opinion on the financial markets development in Labuan:

“Labuan FSA continues to upgrade its level of financial services including licensing of offshore FX Brokerages. Whilst it’s important to grow this industry, regulations are present at the same time ensuring that robust guidelines and market practices regulating FX Brokers do also tap into major financial money markets or institutions to spread forex risks. Investment and Commercial Banks in Labuan do play this supportive role to the Labuan FX trading industry. Labuan’s banking sector has a healthy asset base of more than USD 50 billion reinforced with strong liquidity and diversified quality assets including FX portfolios.

In the recently reported, Labuan IBFC’s Market Update on 25th March 2019, it is aggressively embarking on an international intermediation role to enable Labuan businesses to continue tapping into opportunities in the Asian region.

Labuan IBFC’s growing prominence as a regional financial hub underpinned through facilitating intra-Asian trade, investments and asset intermediation. This has aided Labuan IBFC to incubate many FinTech start-ups establishing innovative financial services- related businesses; offering a ready suite of structures and solutions in the areas of FX broking, capital market and wealth management businesses.

Labuan IBFC is committed to grow its non-resident owned businesses. There are no restrictions to foreign ownership unlike other jurisdictions requiring local director rules. This is friendly for international business.
Labuan IBFC registered double-digit growth of 12.5% or 1,059 incorporations in 2018, mainly from the Far East region, with a majority from Japan, China and South Korea.

As with any progressive IBFC in order to take advantage of its premier offerings, I do foresee Labuan FSA requisite of substance rules and greater transparency in all cross-border transactions.”

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