Malaysia will permit up to five foreign law firms to set up local offices as part of a partial liberalisation of its formerly restricted legal industry.
To promote the country as an Islamic finance hub, the Malaysian government has decided to allow up to five foreign law firms specialising in Islamic finance to set up local offices. However, the firms will not be allowed to branch out into other practice areas, restricted to advising only on Islamic finance transactions.
In a move similar to the Singapore government's recent QFLP licence grants, foreign firms' applications will be judged on their "credibility" and the business plan of their Malaysian office.
However, the decision has been criticised by the local legal industry. The Malaysian Bar Council (MBC) said it was "disappointed" with the government's decision and opposed foreign law firms entering "on a stand-alone basis", and instead proposed a system of "managed liberalisation", through joint ventures between local and foreign firms.
"By permitting foreign law firms to set up on a stand-alone basis, there is no necessity for such firms to share or transfer any technology or knowledge to Malaysian practitioners," said Ragunath Kesavan, the MBC's president.
Kesavan also raised doubts as to whether the objective behind the liberalisation - to establish Malaysia as Asia's Islamic finance hub - would be achieved, since he said it is unlikely that the approved foreign firms will bring more clients and business to the country.
The announcements come as competition intensifies between Asian countries keen to capture market share in the booming Islamic finance market. According to Azmi Mohdi Ali, managing partner of Malaysian firm Azmi & Associates, Singapore's recent launch of a global Islamic bond program indicated that it was fast catching up to Malaysia's lead in the market. Ali said that Singapore had an advantage due to its better access to international customers and its accommodation of foreign law firms.
"In the near future, Malaysian law firms may need to play catch-up with Singapore lawyers as fast as possible," Ali said. "The Islamic banking gap between Malaysia and Singapore is narrowing and the position that Malaysia enjoys as an international Islamic financial hub may soon be achieved by Singapore."
Ali added that competition between firms will heat up as international interest in the Islamic finance industry grows. "The competition between the Islamic finance players - including law firms - in Malaysia and Singapore is more in terms of procuring work from clients from outside the region," he said. "Especially since the current global financial crisis has shown the resilience of Islamic banks, there will certainly be more legal enquiries and work for law firms involved in Islamic finance."
Ali said his firm is wholly open to the legal industry's liberalisation and that local firms who embrace this will not lose out to competition, but will rather "emerge tougher and more creative".