Malaysia: New Financial Center, New Legal Market Reforms

Malaysia has launched a new financial center in Kuala Lumpur, reports Asia Legal Business.  Named the Tun Razak Exchange, the center has reportedly already attracted $1 billion in investment, in a bid to create a new business and financial hub in Asia.  With the world’s biggest Islamic bond market, Kuala Lumpur hopes to create a hub for both Islamic and conventional finance, according to Lodin Wok Kamarrudin, chairman of the board of directors at 1Malaysia Development Berhad, a strategic development company wholly owned by the Government of Malaysia. The project is part of Malaysia’s $444 billion Economic Transformation Program (ETP) aimed at making the country a high-income nation by 2020.

In a separate, but complimentary initiative, Malaysia is also enacting measures to open up its legal market to foreign firms, similar to liberalization efforts already underway in other parts of Asia, such as Singapore and Korea. The Legal Profession (Amendment) Act 2012 which was approved by the Malaysian Parliament in June amends the legislation governing the legal profession. The amendment allows a number of foreign law firms to open offices in Malaysia, the establishment of joint ventures with Malaysian law firms and for foreign lawyers to be employed by Malaysian firms.

Some foreign firms already have close ties to the country in the form of associations with local Malaysian firms.  Wong & Partners, for example, is the Malaysian member firm of Baker & McKenzie International, while Rahmat Lim & Partners is the Malaysian associated firm of Singapore’s Allen & Gledhill.

Interest from other global firms is just beginning to stir.  In mid-July, UK firm Trowers & Hamlins, after gaining special approval from the Malaysia Investment Development Authority, announced the opening of a non-trading representative office in Kuala Lumpur, the first foreign firm to establish a local presence in the country.  Law.com reports that as soon as the new legal framework is set, the firm plans to apply for an independent license to practice. Nick White, Trowers Malaysia head said:

“Right now, we seek to develop our relationships with Malaysian clients in terms of the wide-ranging business sector legal advice they need outside of Malaysia.  But with a full license, we would expand that strategy by providing international expertise in relation to, for example, the energy, infrastructure, PPP and Islamic finance sectors.”

The article also reports that other UK firms that may be interested in practicing in the country include Norton Rose and Allen & Overy.  However, not all firms are as enthusiastic. Crispin Rapinet, regional managing partner for Hogan Lovells in Asia and the Middle East said:

“Historically, the Malaysian market has always been a fairly domestic one, with less international work than is the case in other jurisdictions in Southeast Asia. This may change if the suggestion that the banking market might open up more to international banks becomes a reality.”

And that is just what the government is hoping will happen with the opening of the financial center and the enactment of legal market reforms.  The global market for Islamic finance at the end of last year was valued at approximately $1.3 trillion, according to the UK Islamic Finance Secretariat.  Malaysia dominates the global sukuk (a type of bond that complies with Islamic law)issuance market, with almost 70% of the world sukuk issuance in 2011, valued at $58.1 billion (out of a total of $84.4 billion).  As Deputy Minister in the Prime Minister’s Department Datuk Liew Vui Keong said in The Star Online, “With the [Legal Profession] amendment, Malaysia can secure its position as one of the key players in Islamic finance.”

Posted by Marianne Purzycki