Guidelines On Mutual Funds In Labuan

1. Application

Applications for carrying out mutual fund activities in Labuan can be made to The Authority.

2. Introduction

The governing legislation of mutual funds business and operations in Labuan is the Labuan Offshore Securities Industry Act 1997 (LOSIA), now under LFSSA 2010. These guidelines set out the requirements and procedures for setting up mutual funds in Labuan. They also spell out the terms, conditions, restrictions or limitations in operating the funds.

Mutual fund can be structured as a company, partnership or unit trust. The company can be incorporated as an offshore company under the Offshore Companies Act 1990 or under the laws of any recognized country or jurisdiction. The establishment of a partnership can be done under the Labuan Offshore Limited Partnership Act 1997, now under Labuan Limited Partnerships and Limited Liability Partnerships Act 2010. Two types of funds are prescribed under LOSIA - Private funds and Public funds.

3. Definition

Private funds are those

  • whose shares are not offered to the general public and are owned or held by
    • not more than 50 investors where the first time investment of each of such investors is not less than RM250,000 or its equivalent in any foreign currency
    • any number of investors where the first time investment of each such investors is not less than RM500,000 or its equivalent in any foreign currency
  • that are designated by the Minister of Finance as private funds

Public Funds are those whose shares are offered for subscription to any member of the general public.

4. Private Funds

A consent under section 8 of LOSIA is needed for a private fund to carry on business in Labuan. Application for such consent should be made to The Authority.

Consent Requirements
An applicant fund must submit a duly completed Form 1/PRF. The applicant fund is also required to submit to The Authority the following

5. Public Funds

No public fund shall carry on business in or from within Labuan unless it has been granted registration under section 11(1)(a), LOSIA. Application for registration to carry on business should be made to The Authority.

6. Operational Requirements

  • All public funds must appoint a fund manager, trustee, administrator and custodian that are approved by The Authority
  • The applicant fund must maintain a registered office in Labuan. For a Labuan fund which is permitted to be managed by a fund manager from a recognized country or jurisdiction, at least one of the fund-related businesses such as custodian, trustee or fund administration must be based in Labuan
  • Public funds which have been granted provisional acceptance under section 11(1)(b) are not allowed to accept subscription monies or make investments until being granted registration. They are allowed to use the provisional acceptance only for promotional or publicity purposes
  • The applicant fund shall conduct business in only foreign currency and not in ringgit except solely for the purpose of defraying administrative and statutory expenses
  • The applicant fund shall appoint an approved auditor
  • The applicant fund must notify The Authority of any amendment or alteration to any of its constituent document
  • The applicant fund must conduct its business with due diligence and sound principles, maintain adequate and proper records and books of accounts, comply with the local laws and regulations where it serviced its clients and indicate clearly its names and license number on its letterhead, stationery and other documents
  • A public fund must comply with the requirements of section 16 of LOSIA with regards to its accounts and the auditing of the same
  • All funds must obtain approval of The Authority for any change of business plan

Investment and Borrowing Limitations

The following are the basic investment limitations and prohibitions applicable to public funds authorised in Labuan. The provisions do not apply to recognised jurisdiction schemes where similar restrictions were imposed by the laws of the jurisdiction in which such funds are established

  • The value of a fund’s holding of securities issued by any single issuer may not exceed 10% of its net asset value. Government securities are exempted from this requirement
  • A fund may not hold more than 10% of any class of security issued by any single issuer
  • The value of a fund’s holding of unlisted securities may not exceed 15% of its net asset value
  • A fund may not invest in land or interest in land (or options, rights or interests in respect thereof)
  • A fund may not invest in a security of any class in any company or body if any director or officer of the managers individually owns more than 0.5% of the total nominal amount of all the issued securities of that class or collectively such directors and officers own more than 5% of such securities
  • A fund may not make any investment carrying unlimited liability
  • A fund may not make any short sale which would have the consequence that the fund’s liability to deliver securities exceeds 10% of its net asset value
  • A fund may not acquire any nil or partly-paid securities unless any call thereon could be met in full out of cash or near cash held by the fund
  • A fund may not assume, guarantee, endorse or otherwise become directly or contingently liable for, or in connection with, any obligation or indebtedness of any person in respect of borrowed money without the prior consent of the trustee / custodian
  • A fund shall not borrow in excess of 25% of its net asset value

Malaysian Investment Limits

  • The applicant fund is prohibited from making an offer for subscription or purchase of shares in a mutual fund to residents of Malaysia other than those approved by relevant authorities and those classified as exempt purchasers under section 29(8), LOSIA.
  • For offshore funds with majority subscribed by Malaysian, the aggregate value of investments in Malaysian assets should not exceed 30% of the investment value of the fund. Offshore funds majority owned by non-residents are not subject to this requirement.

Investments and dealings in futures and options

  • The value of a fund’s investment in warrants and options not held for hedging purposes may not exceed 15% of its net asset value
  • The writing of call options on portfolio investments may not exceed 25% of a fund’s net asset value in terms of exercise price
  • A fund may enter into financial futures contracts and invest in options and warrants for hedging purposes
  • A fund may enter into futures contracts on an unhedged basis provided that the net total aggregate value of contract prices, whether payable to, or by, the fund under all outstanding futures contracts, together with the aggregate value of holdings referred to in the next paragraph, does not exceed 20% of the total net asset value of the fund
  • No fund shall write uncovered options

7. Reporting Requirement

The applicant fund is to submit to The Authority within six months after the close of each financial year, 2 copies of its audited annual balance sheet and profit and loss account. The applicant fund is also expected to provide statistics and information required from time to time by The Authority in relation to prudential information, general business conduct and volume and direction of business in Labuan.