Labuan, located off the coast of Borneo, is a federal territory of Malaysia that is gaining recognition as a thriving hub for international business and finance. With its strategic location, well-developed financial services sector and favorable tax policies, Labuan has established itself as a hub for offshore banking, wealth management, and the trading of commodities, such as oil and gas. This has driven the growth of the island's economy and solidified its position as a leading financial center in the region.

The Labuan Financial Services Authority (Labuan FSA) has established guidelines to clarify the application procedures, operational and regulatory requirements for money broking businesses operating in the area. To be eligible to carry out money broking in Labuan, it is required to have money broking expertise and a good track record as well as be a licensed institution approved by the Authority.

As a licensed Labuan money broker you can: 

• act as mediators to bring together and match clients with their counterparties in money or foreign exchange markets;
• facilitate transactions and receive payment for their services in the form of brokerage or commission fees;
• provide digital platforms for trading of currencies.

A licensee must act as a mediator, not a principal. A principal "deals for their own account and takes on the risk." The guidelines prohibit the Labuan money broker from taking positions.

In order to obtain a license an applicant must submit application forms to the Labuan FSA website, along with the required supporting documents. It is necessary to present a certificate proving the required paid-up capital has been deposited in a bank in Labuan or Malaysia for the money brokering business. Further, it must be ensured that the applicant's controlling persons, directors, and principal officer are trustworthy and suitable.

Labuan FSA expects that the relevant persons are competent, honest, possess integrity and have sound financial standing. This provides the FSA with the assurance that such persons are able to fulfil their statutory obligations under the relevant legislations and to act effectively, honestly, fairly and in the best interest of their organisation’s stakeholders. Therefore, the Regulator will assess and determine the fitness and propriety of relevant persons. The fit and proper requirements apply to persons in control, directors, officers, and persons who are responsible for key functions of the company. If the relevant person fails to satisfy Labuan FSA that the relevant person is fit and proper, Labuan FSA may refuse the person’s application. 

Below is the list of Operational Requirements for Labuan Money Brokers:

• Maintain a paid-up capital of at least 500,000 MYR (Malaysian Ringgit) or equivalent in a foreign currency. Labuan FSA may require additional capital based on the business operations and risk profile.
• Maintain an operational office in Labuan, used only for business purposes and appropriately furnished with office equipment.
• Ensure that persons in control, directors, and principal officer meet fit and proper requirements as specified by Labuan FSA. Employees must be competent and possess sound knowledge of services offered.
• Have an adequate set of internal policies and controls for operations, compliance, governance, and risk management, which should be regularly reviewed.
• Ensure counterparties (principal broker and liquidity provider) are regulated by a recognized authority.
• Serve institutional investors and high-net-worth individuals and impose a maximum leverage limit of 100:1, requiring a minimum margin deposit of 1%.
• Appoint a Labuan FSA approved auditor to carry out an annual audit of accounts.
• Comply with Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities Act 2001 and related Labuan FSA guidelines.
• Maintain adequate records and books of accounts in Labuan, clearly indicating name and company number on letterhead, stationery, and other documents.
• Obtain prior approval from Labuan FSA for changes in ownership, shareholding, directors, business plan, additional offices, or outsourcing arrangements.
• Properly manage technology risk for electronic business models, including data security, IT systems maintenance, and incident reporting.
• Appoint a qualified person to the internal Shariah advisory board for Islamic money broking businesses.
• Comply with applicable laws, rules, and regulations, including Labuan FSA guidelines, and obtain necessary approvals from other markets before operating.

*It is important to note that the Labuan FSA may impose additional operational requirements on a case by case basis. 

Conduct Requirements for Labuan Money Brokers:

• Requirements to promote good professionalism and clients’ confidence:
  • Integrity and Fair Dealing: Conduct business with honesty, fairness, integrity and professionalism
  • Skills, Care and Diligence: Act competently and diligently with clients
  • Handling of confidential information: treat information as confidential and limit access, subject to laws and regulations
  • Employees must not reveal confidential information after termination of employment
  • Professional Client Management: Act in the best interest of clients and provide fair, accurate and timely information
  • Dispute Mechanism and Complaint Handling: have in place dispute mechanism and adequate complaint handling procedure
• Requirements for Labuan Money Broker dealing in foreign exchange market:
  • Must have risk mitigating measures such as stop loss orders to prevent undue exposures
• Due Diligence Requirements:
  • Conduct proper due diligence on clients, principal broker, liquidity provider, and trading platform providers
• Handling of client monies:
  • Keep client's monies accounts separate from its own and readily identifiable
  • Maintain proper record of client's monies accounts and reconcile with internal records monthly
  • Client's monies shall not be used to pay the broker's debts
• Clarity with clients:
  • Must make capacity in which institution is acting clear to clients
  • Provide full and true disclosure to clients for any conflicts of interest
  • Provide written agreement with clients detailing duties and responsibilities
• Quoting of Prices:
  • Must make clear whether the price quoted is firm or merely indicative
  • No frivolous quotes allowed
• Disclosures to clients:
  • List of authorized introducing brokers on a publicly accessible medium
  • Risk disclosure and spreads charged
  • Any other fees or charges related to client's trading transactions
• Performance updates:
  • Clients must be updated on their trading performance on a monthly basis