The Labuan Forex License gained a lot of respect after the very recent changes in the regulatory regime of more reputable jurisdictions, just like our very own European MiFID ii, which made it inevitable for forex brokers to look into other possibilities to rest their brokerage operations.
Supervised by the Financial Services Authority (Labuan FSA), the arm of the Labuan International Business and Financial Centre (IBFC), a money broking license allows a Forex Broker to operate uninterrupted within a low tax regime, limited restrictions in the corporate structure and a relatively quick setup (relative to the complexity of each case and compared with other jurisdictions).
Firstly, to answer the most frequently asked questions we receive regarding a Labuan Forex License:
- Local office and employees are a requirement
- The capital requirements of RM500,000 (approx. $125,000) can be used as operating capital
So how does someone start the process to obtain a Labuan Forex License?
Same as with most licenses, the process starts by collecting/submitting documents. After receiving conditional approval by the Labuan FSA, the capital requirements as well as the office set up must be arranged.
In this regard, the documents required are more or less the same:
- Notarised copy of Passport
- Recent government Utility Bill (water, electricity – no older than 3 months)
- Reference letters for Shareholder(s) and Directors from a Bank and a CPA
- Bank statement not older than 3 months, confirming the funds required for the capital requirements (RM 500,000 equivalent to approximately $125,000)
- A certified copy of Academic qualifications (true copy stamp from the university/college is enough) for Shareholder(s) and Directors
Important note: The documents must be in the English language – if they can’t be provided in their original form in English, a notarized English translation must be sent as well.
Information on the corporate structure requirements of a Labuan Forex License
The Shareholder of the company can be a legal person, unlike the minimum 2 Directors (that must be pre-approved by the Labuan FSA) and appointed on the board. The 2 Directors must have proper backgrounds and experience and their approval is at the discretion of the regulator. The Shareholder(s) and Directors are not required to be residents of Malaysia. There are also no restrictions to where the board holds its meetings although the minutes must be signed by a resident secretary.
An office with minimum annual expenditure of $20,000 and 2 local employees is mandatory, as well as audited financial statements and the filing of annual and tax returns. A RM 5,000 (approx. $1,500) yearly license renewal fee is due before the 15th of January of the next year.
The Labuan FSA offers a very discreet and private environment for licensed entities, allowing for strict confidentiality and no public disclosures of the beneficial owner’s info.
After announcements on guidelines, changes and updates on the conduct of business of forex brokers (that came into effect on January 1st, 2018), an approval from the authorities of countries intended to do business in, became mandatory. The Labuan FSA will require this before allowing the broker to commence operations. Transactions in the Malaysian Ringgit are prohibited as well as soliciting Malaysian residents. There are margin requirements and leverage restrictions (although not as bad as Europe and US) that are capped depending on the experience of the trader. Segregated client accounts, time frames for client withdrawals, a detailed business plan and compliance with the AML/CFT Act on money laundering issued by the Central Bank of Malaysia (CBM) are part of the mandatory supervised operations.
Why a Labuan Forex License?
Some key characteristics of the Labuan Forex License include but are not limited to the very low costs compared to most regulated jurisdictions, the stability of Malaysia’s political environment, its strategic location relative to potential target countries as it shares the same time zone with major Asian countries like China, Hong Kong, parts of Russia & Indonesia, Philippines and also a small 1 hour difference with parts of Russia, Indonesia, Cambodia, Laos, Bangladesh, Japan, South Korea, Thailand, Myanmar, Vietnam.
If you have Institutional business as a network and operate through a forex IB or White Label program, jurisdictions like Malaysia are a great option to start your own brokerage, before moving forward into more complex and expensive alternatives. Unlike working unregulated, a Labuan license will provide comfort to your clients who need a regulated broker to support their trading needs.
Time frames to get the license:
Although people/offices will try to convince you that they can get your setup up and running within 4 months (or less), we will refrain from making any promises since it’s in the discretion of the national regulator to approve, ask questions or even reject any application depending on its complexity and structure. Usually our initial internal assessments are enough to identify problems (if any) in the early stages, thus maintaining excellent time frames.
How allFX-Consult can step into this picture:
allFX-Consult is a boutique forex consulting agency, catering to quality rather than quantity. For over a decade, our Directors have been connecting with some of the best individuals/professionals, service providers and brokers the industry has to offer so that we can meet any forex corporate challenge.
Because of this, allFX-Consult always has a counterpart/partner for any corporate structure. Before we make any recommendations, we thoroughly examine all possibilities. We’re chosen for being discreet, detail oriented and deadline driven.
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