CoDE ASIA 2021
CoDE ASIA 2021
21st October 2021
Welcome Speech By
Mr Nik Mohamed Din Bin Nik Musa
Director-General, Labuan FSA
Distinguished Guests, Ladies and Gentlemen,
May I wish a Very Good Afternoon to all of you.
1. Firstly, I would like to extend a warm welcome to all and to thank you for making the time to attend the third edition of Labuan IBFC’s digital conference “Connecting Digital Ecosystems Asia” or “CoDE Asia 2021”. I would like to especially thank the speakers and panellists who are with us today to share their insights, experience and knowledge on the challenges as well as opportunities brought forth by digital innovations in the financial space. When organising this conference, it was clear that the content of this conference would need to have an international “flavour” considering the regional role that Labuan IBFC plays as wholesale intermediation centre including the digital market space. Hence, we have speakers hailing not just from Malaysia, but also from international level. More importantly, the audience comprises participants from all over the world. This will indeed bode very well to the furtherance of the digital market in Labuan IBFC.
Ladies & Gentlemen,
2. When the inaugural CoDE Asia was held in 2019, Labuan IBFC’s digital space was still in its infancy after having licensed its first digital player in 2017. Nevertheless, this segment has shown promising growth over the last five years and reflected the growing momentum towards digitalization of business models, and the shifting of business and financial activities from predominantly offline and brick-and-mortar outlets to online outlets. In fact, behind every crisis there is always an opportunity. COVID-19 has been regarded as a catalyst that accelerated digital transformations at a pace and breadth that was perhaps unimaginable before. All over the world, digital technology and online platforms have become the prevalent solution to connect and mend the disjointedness that the pandemic has wrecked in most aspects of business and personal lives.
3. Having been established as a financial supervisory and regulatory authority for 25 years, experience tells us that economies simply do not work in silo. Hence, when Labuan FSA set forth in developing Labuan IBFC as a domicile for digital players in a pre-pandemic world, we were already highly cognisant that connectivity and collaboration between ecosystems would be instrumental for the domicile to thrive.
Ladies & Gentlemen,
4. The Digital Financial Services (DFS) in Labuan IBFC is continually growing in recognition of the progressive approach that the centre has taken in embracing the digital revolution, by being as facilitative as possible to enable innovative digital business to take root in Labuan.
5. As at September 2021, the number of DFS providers that have been approved to operate in the Labuan IBFC digital space has grown to 85 licensees. The key licensees include 2 digital banks, 1 insure-tech and 1 digital securities exchange respectively, 16 payment systems providers, 18 credit token issuers and 33 money brokers, some of which operate digital exchanges. Out of the total number of DFS providers in Labuan IBFC, the majority were licensed to provide digital currency trading platform, issuance of digital token and e-payment system or e-wallet.
6. In addition to the digital market space, Labuan IBFC is home to more than 5,000 active entities which include 70 banks, 232 insurance and insurance related entities, 65 trust companies and many other business sectors, with an ecosystem that could promote growth of digital business.
7. In addition, Labuan IBFC is envisioned to become a digital-based gateway with Islamic finance capabilities for all types of global investors and players as the future of Islamic finance looks ever promising. The digital transformation in Islamic finance positively contributes to the evolution and innovation of Islamic financial products and services in a rapid tone. As we continue to strengthen Islamic finance footing in the region, our focus now is to realise the full potential of digital opportunities by offering an all-inclusive package of shariah digital-based solutions including leveraging on Islamic finance and social-based finance instruments. This could further expand Islamic finance development across emerging markets while building connectivity with wider Islamic finance industry.
Ladies & Gentlemen,
8. As the regulator for Labuan IBFC, Labuan Financial Services Authority (Labuan FSA) plays a critical role in ensuring that there is a facilitative structure and framework as well as a conducive environment that will enable innovative technology and digital business to flourish. Labuan is a bedrock for new technologies to incubate.
9. Nevertheless, Labuan FSA recognizes the challenges that are inherent in ensuring that businesses are conducted in an orderly and prudent manner. It is therefore essential to find the right balance between appropriate regulation to protect investors and markets and encouraging new ideas in the digital market space.
May I wish a Very Good Afternoon to all of you.
1. Firstly, I would like to extend a warm welcome to all and to thank you for making the time to attend the third edition of Labuan IBFC’s digital conference “Connecting Digital Ecosystems Asia” or “CoDE Asia 2021”. I would like to especially thank the speakers and panellists who are with us today to share their insights, experience and knowledge on the challenges as well as opportunities brought forth by digital innovations in the financial space. When organising this conference, it was clear that the content of this conference would need to have an international “flavour” considering the regional role that Labuan IBFC plays as wholesale intermediation centre including the digital market space. Hence, we have speakers hailing not just from Malaysia, but also from international level. More importantly, the audience comprises participants from all over the world. This will indeed bode very well to the furtherance of the digital market in Labuan IBFC.
Ladies & Gentlemen,
2. When the inaugural CoDE Asia was held in 2019, Labuan IBFC’s digital space was still in its infancy after having licensed its first digital player in 2017. Nevertheless, this segment has shown promising growth over the last five years and reflected the growing momentum towards digitalization of business models, and the shifting of business and financial activities from predominantly offline and brick-and-mortar outlets to online outlets. In fact, behind every crisis there is always an opportunity. COVID-19 has been regarded as a catalyst that accelerated digital transformations at a pace and breadth that was perhaps unimaginable before. All over the world, digital technology and online platforms have become the prevalent solution to connect and mend the disjointedness that the pandemic has wrecked in most aspects of business and personal lives.
3. Having been established as a financial supervisory and regulatory authority for 25 years, experience tells us that economies simply do not work in silo. Hence, when Labuan FSA set forth in developing Labuan IBFC as a domicile for digital players in a pre-pandemic world, we were already highly cognisant that connectivity and collaboration between ecosystems would be instrumental for the domicile to thrive.
Ladies & Gentlemen,
4. The Digital Financial Services (DFS) in Labuan IBFC is continually growing in recognition of the progressive approach that the centre has taken in embracing the digital revolution, by being as facilitative as possible to enable innovative digital business to take root in Labuan.
5. As at September 2021, the number of DFS providers that have been approved to operate in the Labuan IBFC digital space has grown to 85 licensees. The key licensees include 2 digital banks, 1 insure-tech and 1 digital securities exchange respectively, 16 payment systems providers, 18 credit token issuers and 33 money brokers, some of which operate digital exchanges. Out of the total number of DFS providers in Labuan IBFC, the majority were licensed to provide digital currency trading platform, issuance of digital token and e-payment system or e-wallet.
6. In addition to the digital market space, Labuan IBFC is home to more than 5,000 active entities which include 70 banks, 232 insurance and insurance related entities, 65 trust companies and many other business sectors, with an ecosystem that could promote growth of digital business.
7. In addition, Labuan IBFC is envisioned to become a digital-based gateway with Islamic finance capabilities for all types of global investors and players as the future of Islamic finance looks ever promising. The digital transformation in Islamic finance positively contributes to the evolution and innovation of Islamic financial products and services in a rapid tone. As we continue to strengthen Islamic finance footing in the region, our focus now is to realise the full potential of digital opportunities by offering an all-inclusive package of shariah digital-based solutions including leveraging on Islamic finance and social-based finance instruments. This could further expand Islamic finance development across emerging markets while building connectivity with wider Islamic finance industry.
Ladies & Gentlemen,
8. As the regulator for Labuan IBFC, Labuan Financial Services Authority (Labuan FSA) plays a critical role in ensuring that there is a facilitative structure and framework as well as a conducive environment that will enable innovative technology and digital business to flourish. Labuan is a bedrock for new technologies to incubate.
9. Nevertheless, Labuan FSA recognizes the challenges that are inherent in ensuring that businesses are conducted in an orderly and prudent manner. It is therefore essential to find the right balance between appropriate regulation to protect investors and markets and encouraging new ideas in the digital market space.
10. In regulating digital business, Labuan FSA needs to ensure proportionality between fostering innovation, having an appropriate level of protection and allowing investors the freedom to make business decisions which are not only commercially viable but legally and ethically responsible. One of the key requirements is that any prospective business model must be for genuine and legitimate purposes, and has met the necessary criteria for such business to be operated out of Labuan IBFC.
11. In this regard, prospective investment in digital businesses would need to obtain Labuan FSA’s prior approval for any proposed digital business if the activities fall within the ambit of Labuan Financial Services Securities Act 2010 or Labuan Islamic Financial Services Securities Act 2010. It is also required that the entities adhere to anti money laundering and terrorism financing standards to ensure the digital setups are not abused for such purposes.
12. The regulatory aspects of such digital businesses demand that the business is properly managed through, for example, having sufficient capital resources, having adequate internal controls, and having strong risk management and governance. These robust measures are needed to mitigate the many inherent risks that are brought about by the very nature of digital business, such as limited human interface, its reach, technological changes, speed, and cyber risks.
11. In this regard, prospective investment in digital businesses would need to obtain Labuan FSA’s prior approval for any proposed digital business if the activities fall within the ambit of Labuan Financial Services Securities Act 2010 or Labuan Islamic Financial Services Securities Act 2010. It is also required that the entities adhere to anti money laundering and terrorism financing standards to ensure the digital setups are not abused for such purposes.
12. The regulatory aspects of such digital businesses demand that the business is properly managed through, for example, having sufficient capital resources, having adequate internal controls, and having strong risk management and governance. These robust measures are needed to mitigate the many inherent risks that are brought about by the very nature of digital business, such as limited human interface, its reach, technological changes, speed, and cyber risks.
13. For the market in Labuan IBFC specifically, the pandemic has amplified the need for Labuan financial institutions (LFIs) to address the disruption to their business operations arising from movement restrictions and quarantines. With this in mind, Labuan FSA has issued two key policy documents that are designed to encourage a more structured and orderly development of the digital market in Labuan IBFC as well as to mitigate the post-pandemic risks to the LFIs:
14. As digitisation for the financial sector evolves, regulatory bodies globally will be posed with the balancing act of determining appropriate ways of regulating these changes vis-a-vis promoting market breakthrough and innovations. Ensuring stability will remain of paramount importance as financial transactions become more seamless, intangible and borderless. Labuan FSA is of no exception on this front, and it is committed to adopting a facilitative approach by developing “fit-for-purpose” requirements to cater for emerging business technologies. This includes ensuring timely regulatory interventions to address any market misconduct or malpractice failures due to information asymmetries or inadequacy which can arise from digital financial transactions.
15. The two Guidelines I had mentioned will complement and further enhance the current regulatory requirements particularly in the areas of governance, cyber risk management and market conduct to ensure Labuan digital financial services are carried out in a sound, transparent and professional manner in Labuan IBFC.
Ladies & Gentlemen,
16. As a business and financial centre with over 30 years of experience, Labuan IBFC has developed a reputation as a well-regarded, well-regulated and business–friendly jurisdiction. We firmly believe that it will only benefit the players, including digital players, that this reputation be maintained to enable businesses to be sustainable for the long-term. Therefore, it is important that Labuan FSA more diligently than ever strives to ensure that the those who intend to enter the gateway into the jurisdiction meet the standards that are expected. Once inside, the supervisory process should be robust and progressive to ensure that they adhere to guidelines and regulations and to maintain the stability, safety and soundness of the Centre.
17. Going into its third edition, CoDE Asia 2021 is an aptly timed conference. As most countries in the region are looking to transition into the endemic phase, albeit cautiously, the question that weighs heavily on our minds is – what does the new norm entail?
18. At this juncture it would be difficult to provide any answer with certainty. Nevertheless, we are certain of two things. First of all, Labuan IBFC aims to continue growing our digital ecosystem, alongside our Asian counterparts. Secondly, industry needs and market expectations will continue to evolve, technologies will innovate and adapt, and so too will the ecosystems that surround them. Hence, with the conference themed “Future Forward: Next Gen Digital Ecosystems”, the sessions that ensue will provide insights into the ecosystems that industry practitioners are envisioning.
Ladies & Gentlemen,
19. In closing, I would like to congratulate Labuan IBFC Inc. for successfully organising this virtual conference. This conference would not also have been possible without our Supporting Partners namely, ASEAN Blockchain Consortium; ACCESS Blockchain Association Malaysia; ACCESS Singapore; Blockchain Association Singapore; and Fintech Association of Malaysia. My thanks again to the speakers representing the digital exchanges and crypto trading platforms, regional fintech and blockchain associations, banks and corporate legal advisers. And to our participants, thanks for taking the time to join us this afternoon and use this platform to raise questions, as well as to share ideas and comments about the industry’s future prospects.
20. With that, ladies and gentlemen, I wish you a fruitful conference ahead. Thank you.
- The Guiding Principles on Business Continuity Management was issued in February 2021 as means of enhancing LFIs’ operational resilience and ensuring their services to clients remained uninterrupted.
- The second document, which was recently issued in September 2021, was the Guidelines on Digital Governance Framework. The Framework was intended to further strengthen the industry’s cyber resilience through sound digital governance and risk management practices. This includes requiring LFIs to adopt a systematic and consistent approach in preserving data confidentiality, system security and resilience that is commensurate with the nature and complexity of their digital setup.
14. As digitisation for the financial sector evolves, regulatory bodies globally will be posed with the balancing act of determining appropriate ways of regulating these changes vis-a-vis promoting market breakthrough and innovations. Ensuring stability will remain of paramount importance as financial transactions become more seamless, intangible and borderless. Labuan FSA is of no exception on this front, and it is committed to adopting a facilitative approach by developing “fit-for-purpose” requirements to cater for emerging business technologies. This includes ensuring timely regulatory interventions to address any market misconduct or malpractice failures due to information asymmetries or inadequacy which can arise from digital financial transactions.
15. The two Guidelines I had mentioned will complement and further enhance the current regulatory requirements particularly in the areas of governance, cyber risk management and market conduct to ensure Labuan digital financial services are carried out in a sound, transparent and professional manner in Labuan IBFC.
Ladies & Gentlemen,
16. As a business and financial centre with over 30 years of experience, Labuan IBFC has developed a reputation as a well-regarded, well-regulated and business–friendly jurisdiction. We firmly believe that it will only benefit the players, including digital players, that this reputation be maintained to enable businesses to be sustainable for the long-term. Therefore, it is important that Labuan FSA more diligently than ever strives to ensure that the those who intend to enter the gateway into the jurisdiction meet the standards that are expected. Once inside, the supervisory process should be robust and progressive to ensure that they adhere to guidelines and regulations and to maintain the stability, safety and soundness of the Centre.
17. Going into its third edition, CoDE Asia 2021 is an aptly timed conference. As most countries in the region are looking to transition into the endemic phase, albeit cautiously, the question that weighs heavily on our minds is – what does the new norm entail?
18. At this juncture it would be difficult to provide any answer with certainty. Nevertheless, we are certain of two things. First of all, Labuan IBFC aims to continue growing our digital ecosystem, alongside our Asian counterparts. Secondly, industry needs and market expectations will continue to evolve, technologies will innovate and adapt, and so too will the ecosystems that surround them. Hence, with the conference themed “Future Forward: Next Gen Digital Ecosystems”, the sessions that ensue will provide insights into the ecosystems that industry practitioners are envisioning.
Ladies & Gentlemen,
19. In closing, I would like to congratulate Labuan IBFC Inc. for successfully organising this virtual conference. This conference would not also have been possible without our Supporting Partners namely, ASEAN Blockchain Consortium; ACCESS Blockchain Association Malaysia; ACCESS Singapore; Blockchain Association Singapore; and Fintech Association of Malaysia. My thanks again to the speakers representing the digital exchanges and crypto trading platforms, regional fintech and blockchain associations, banks and corporate legal advisers. And to our participants, thanks for taking the time to join us this afternoon and use this platform to raise questions, as well as to share ideas and comments about the industry’s future prospects.
20. With that, ladies and gentlemen, I wish you a fruitful conference ahead. Thank you.
Mr Nik Mohamed Din Bin Nik Musa
Director-General, Labuan FSA
