KUALA LUMPUR — Labuan International Business and Financial Centre (Labuan IBFC) is adopting a flexible, risk-based regulatory approach to support innovation in digital finance while maintaining market integrity, investor confidence and financial stability.
Labuan FSA Director-General Affendi Rashdi said regulation must evolve alongside technological developments, focusing on the nature and scale of activities, the risks involved and their potential impact on consumers, investors and the wider financial system.
He said the rapid development of artificial intelligence (AI), digital assets, tokenisation and programmable finance was reshaping the financial landscape, particularly as Asian economies become increasingly interconnected.
“Activities presenting equivalent risks should receive equivalent regulatory attention, irrespective of the technological platform or terminology used,” he said in his Regulatory Opening Address at the Asia Fintech Forum 2026 here today.
Affendi said Labuan IBFC’s digital financial ecosystem, which began developing almost a decade ago in 2017, had expanded to encompass various digital financial activities, including e-platforms for trading fiat and digital currencies, digital asset exchanges and blockchain-based tokenisation for fundraising.
He said the Centre’s regulatory approach was designed to provide certainty without becoming too rigid, flexibility without compromising standards, and speed without sacrificing scrutiny.
“This balance underpins Labuan FSA’s regulatory approach. It enables us to assess innovative business models within clearly defined parameters, while recognising that technology and market practices can evolve faster than conventional rulemaking cycles,” he said.
Affendi said the Islamic Digital Asset Centre (IDAC) was among Labuan IBFC’s strategic digital initiatives, including the development of Shariah-compliant securities tokens known as RAMZ.
He said tokenisation could enable eligible Shariah-compliant assets, including securities, sukuk and real-world assets, to be structured into digital units, potentially facilitating fractional participation, transparent ownership records and access to regulated trading infrastructure.
He said the IDAC ecosystem also included a Shariah- and ESG-compliant digital asset exchange, an Islamic digital bank regulatory sandbox, and initiatives involving social-finance applications such as zakat, waqf and Hajj-related services.
“Digital innovation and Islamic finance need not develop on separate tracks. The principles of transparency, responsible ownership, asset-backing and ethical conduct can complement the capabilities of blockchain and programmable finance,” he said.
On financial crime risks, Affendi said regulators were increasingly focusing on whether risks were properly understood, controls were effective and red flags were escalated early, particularly in areas such as sanctions compliance and beneficial ownership.
He said technologies such as AI, regulatory technology (RegTech) and blockchain analytics could strengthen detection capabilities but should support, rather than replace, the sound judgement of compliance officers.
Affendi said Labuan IBFC’s strength rested not only on efficiency and flexibility but also on credibility, stressing that trust in its laws, regulations, institutions and financial flows was essential to maintaining its position as an international business and financial centre.
“Labuan IBFC is therefore not about light-touch compliance, but proportionate, risk-based and internationally aligned compliance. In short, not LIGHT-touch regulation, but RIGHT-touch regulation,” he said.
He said Malaysia’s 2025 mutual evaluation by the Financial Action Task Force (FATF) provided a useful reference point, highlighting improvements in the country’s legal framework and supervisory approaches and recognising the robust framework for supervising financial institutions and virtual asset service providers.
Affendi said Labuan FSA would continue strengthening supervisory capability and regulatory implementation, including through its Supervisory Intelligence System (SIS), a standardised platform for managing regulatory applications and submissions involving compliance, audit, anti-money laundering and counter-terrorism financing (AML/CFT), Shariah and electronic know-your-customer (e-KYC) reports.
He also stressed the importance of capability building and cross-border regulatory cooperation to facilitate information sharing, supervisory coordination and consistent implementation of international standards while reducing opportunities for regulatory arbitrage.
“Technology may change how finance is delivered — but trust will remain the currency on which finance depends,” he said.
The Asia Fintech Forum 2026, themed “Architecting Asia’s Financial Frontier: AI, Digital Assets, and Inclusive Banking”, was held at the World Trade Centre Kuala Lumpur.
