The Labuan Financial Services Authority (LFSA) is restricting locally regulated forex and contracts for differences (CFDs) brokers to offering only currency-related instruments, such as spot FX and CFDs on FX. This means these brokers will no longer be able to offer non-currency-related instruments like CFDs on shares, ETFs, and commodities.

New Rules for Money Brokers

The changes come as the regulator, which oversees financial services companies in Malaysia, tightens the licensing rules for all locally regulated money brokers, the default authorization for FX and CFDs brokers.

Under the newly announced rules last week, the paid-up capital for all locally authorized money brokers will be doubled to MYR 1.5 million (about $349,000). Although companies will have two years to comply with the new rules, the regulator expects them to increase their paid-up capital by at least 50 percent of the current amount within one year.

Furthermore, the new rules will limit the leverage of cryptocurrency CFDs to 1:1.

Regulating Sophisticated Products

“Key challenges need to be addressed, like the regulation of sophisticated products and the need to oversee market stability and investor protection in the Labuan IBFC,” said the Director General of Labuan FSA, Nik Mohamed Din Nik Musa.

The licensing restrictions followed Malaysia’s crackdown on several financial scams, including a forex investment scam that defrauded 400 victims of about MYR 100 million (around $23.25 million). Another online gambling operator generated revenue of around MYR 14.05 billion from more than 10,000 people and laundered MYR 371 million into Malaysia.

Interestingly, Malaysia’s LFSA has also added the names of several well-regulated CFD brokers to its routine warning list over the years. LFSA is one of the few regulators in Southeast Asia that properly regulates CFD brokers.