Two regulators, two rulebooks

Malaysia has two separate systems for banks. Onshore banks are licensed by Bank Negara Malaysia, or BNM. Labuan banks are licensed by the Labuan Financial Services Authority, or Labuan FSA.

Labuan IBFC is Malaysia's international business and financial centre. Labuan FSA says Labuan banks are governed by the Labuan Financial Services and Securities Act 2010, the Labuan Islamic Financial Services and Securities Act 2010, the Labuan Companies Act 1990 and the Labuan Business Activity Tax Act 1990.

BNM's list of licensed financial institutions covers commercial banks, Islamic banks, international Islamic banks, investment banks and other financial institutions.

What a Labuan bank does

Labuan FSA describes Labuan banking as including taking deposits on current, deposit and savings accounts. Labuan banks offer term or fixed deposits in major international currencies, and foreign currency term loans.

Labuan banking can be carried out in any currency, including ringgit where permitted by BNM. Labuan FSA also says there are no cash transactions in Labuan IBFC.

Other services listed by Labuan FSA include trade financing, derivatives, foreign exchange and remittances.

A Labuan investment bank is different from a Labuan bank. Labuan FSA says a Labuan investment bank is not allowed to accept deposits.

Malaysian residents can borrow from Labuan banks, subject to BNM's Exchange Control Notice No. 2. Labuan FSA's FAQ gives aggregate limits of RM100 million for resident entities and RM10 million for resident individuals, sole proprietors and general partnerships.

Deposit protection: check PIDM's list

Perbadanan Insurans Deposit Malaysia, or PIDM, protects eligible deposits at its member banks. PIDM says all licensed commercial and Islamic banks are members, including locally incorporated subsidiaries of foreign banks.

Eligible deposits are protected up to RM250,000 per depositor per member bank, with separate limits for Islamic and conventional deposits.

PIDM says it does not protect deposits held in branches and subsidiaries of domestic banks outside Malaysia. Its FAQ does not talk about Labuan banks, so the simplest step is to check whether the exact bank appears in PIDM's member list at pidm.gov.my.

Member banks also display a PIDM membership sign at their branch entrances.

How to tell which one you are dealing with

Some well-known banking groups have both an onshore bank and a Labuan entity. Labuan FSA notes that Labuan banks can operate as branches or subsidiaries. A familiar name alone does not tell you which entity holds your account.

Check the exact legal name on your account opening papers or statement. Then look it up in the right register.

For Labuan, use the Financial Institutions Directory at labuanfsa.gov.my/financial-institutions-directory and open the list of banks and investment banks.

For onshore banks, use BNM's list of licensed financial institutions or its Financial Sector Participants Directory at bnm.gov.my.

SmartChecker shows register records and reviews for the companies it lists, so you can compare what a firm says about itself with what the official registers show.

Common questions

Who licenses Labuan banks? Labuan FSA licenses and supervises banks in Labuan IBFC. Onshore banks are licensed by Bank Negara Malaysia.

Can a Labuan bank take deposits? Yes, a Labuan bank can. Labuan FSA says a Labuan investment bank is not allowed to accept deposits.

Can a Labuan bank deal in ringgit? Labuan FSA says Labuan banking can be done in any currency, including ringgit where permitted by BNM.

How do I know if my deposit is covered by PIDM? Check whether the exact bank is on PIDM's member list at pidm.gov.my. PIDM protects eligible deposits up to RM250,000 per depositor per member bank.