Legal services in Malaysia: an interview with the British high commissioner

Malaysia is part of the Association of Southeast Asian Nations (ASEAN) which includes Singapore, Thailand and Vietnam. It is described as a gateway to South East Asia which offers opportunities across a wide range of sectors for the UK. Malaysia and the UK have agreed to set up a joint committee on bilateral trade and investment cooperation which will focus on minimising barriers to trade between the two nations.

According to the Doing Business 2020 (Comparing Business Regulation in 190 Economies) data published by the World Bank, Malaysia ranks at number 12 in its ease of doing business which makes it a preferred jurisdiction in South East Asia. Malaysia is seen as an ideal platform for expansion into Asia. Over the years, it has developed into a prime location for investment, offshore production and service-based operations.

There is a shared legal tradition between the UK and Malaysia. Amendments to the Legal Profession Act (LPA), which were submitted to the Attorney General’s Chamber in January 2019, are currently under review by the Malaysian Parliament. The main purpose of the act is to re-establish the independence of the legal profession. It is hoped that the amended Legal Profession Act will provide an opportunity for greater collaboration between Malaysian and UK lawyers and law firms.

According to industry estimates, demand for legal services has increased in various sectors in the Malaysian economy, thereby increasing the demand for corporate lawyers. Relaxation of certain restrictions in Malaysia’s legal services sector has introduced changes in the operations of law firms in the country.

We asked Charles Hay, the British high commissioner to Malaysia, what his thoughts were on the role of legal services in Malaysia’s growth. Here are his responses.

How important are legal services to Malaysia’s economy?

These are increasingly important – Malaysia’s service sector has been growing steadily for several years and last year accounted for about 55% of Malaysia’s GDP, making it an important driver of economic growth. Within that, the legal services sector underpins a good deal of the country’s economic activity, whether that be in foreign direct investment, domestic trade, banking or commercial transactions.

What is the legal sector like in Malaysia compared to the UK?

I think the main difference is that, unlike the legal sector in the UK which is home to over 200 foreign legal practices, and thrives on competition, the Malaysian sector is dominated by a large number of relatively small family-owned firms, often conservative in outlook. The sector remains relatively closed, despite some opening up a few years ago, and the opportunities for foreign participation in the Malaysian sector remain limited.

But it is worth noting that even within Malaysia there is not a level playing field for domestic firms. For example, lawyers from peninsular Malaysia may not practice in the states of Sabah and Sarawak, located on the island of Borneo, and vice-versa.

What role are foreign lawyers playing in meeting the needs of Malaysian society and the country’s growth?

Against a backdrop of steady growth and diversification of Malaysia’s economy over recent years, we have seen increasing numbers of Malaysian companies operating internationally, and the country become a net outward investor.

So those international legal firms, whether based in country or elsewhere, with experience of cross border investments, M&A and financing transactions have been well-placed to help Malaysian corporates navigate international business and make a success of it.

They have also been able to help international corporates realise successful investments into Malaysia, thus contributing to the country’s aspirations to become a regional hub. This will continue to be an important area of work, given that attracting foreign investment continues to be a priority for the government.

The other area that stands out for me is Islamic finance where foreign firms with expertise in that area have been able to provide advice on the financing of transactions using Shariah compliant structures and on the international aspects of Islamic finance.

What should encourage foreign lawyers to work in the Malaysia legal sector and are there any barriers to entry?

As foreshadowed in my previous answer, Malaysia’s record of strong economic growth, success in attracting foreign investment and the fact that many of its companies increasingly operate internationally, make it an attractive market. Malaysia is a common law system and much legal work is conducted in English.

For those companies seeking to internationalise, whether on a regional or global scale, ease of access to high quality specialist legal advice is a must. But in many cases, Malaysian corporates have to go outside Malaysia to get that advice, because there is limited provision for foreign participation in the market here.

The two most common routes to market for international legal firms are either through a Qualified Foreign Law Firm (QFLF) licence or an International Partnership. Five QFLF licences were originally made available to foreign firms, but just two have been taken up - both, incidentally, by British firms.

There are several reasons for this:

• licences are granted on a three-year renewable basis, which does not give firms the certainty they need
• firms must have Islamic finance expertise to qualify for a licence
• there are restrictions on areas of practice

International partnerships have not proved to be particularly attractive to British legal firms either: the rules require the Malaysian partner to hold at least 60% equity and voting rights. This removes the incentive for the foreign partner to expand their business and contribute to Malaysia’s legal eco-system.

What's the latest position on the Legal Profession Act and the potential limits placed on the ability of foreign lawyers to practise fly-in fly-out in Malaysia?

The amendments to the Legal Profession Act have yet to be tabled before parliament. I have discussed the draft law with the current and previous AG and Chairman of the Malaysian Bar Council, and my understanding is that the proposed amendments are not as onerous as originally thought; fly-in fly-out will require advance notification only rather than prior approval. And I believe that arbitrators are to be exempted from the advance notification requirement.

I am also hoping to meet and have a separate discussion with the President of the Malaysian Bar Council soon.

How can lawyers not based in Malaysia play a role and contribute to its development?

The other alternative is the fly-in fly-out model, which allows foreign lawyers to advise or consult a client in country provided the accumulated period of stay does not exceed 60 days in a calendar year.

What's your advice to foreign law firms who are unable to choose international partnerships as a viable option, and as a result follow the QFLF route that requires them to comply with Islamic finance conditions?

Investing in an overseas business is costly and time consuming so my advice would be that a firm should be satisfied from its own market research that it can meet in full the Islamic finance conditions and develop a sustainable practice in Malaysia before applying for a QFLF licence.

What impact has the COVID-19 pandemic had on legal services in Malaysia?

In common with many other sectors of the Malaysian economy, legal services have seen a significant decline in business and revenue. The sector was not categorised as an essential service at the start of Malaysia’s lockdown and was unable to operate for several weeks. But legal firms and the agencies they work with such as land offices, commissioner of oaths, Inland Revenue Board, Companies Commission of Malaysia etc, have now all returned to work.

As business confidence begins to improve, Malaysian legal firms are generally optimistic that business, particularly M&A, IPOs and real estate mandates, will pick up post COVID-19 and as the political climate stabilises.

What do you see as the most exciting aspects of Malaysia’s development in the next decade?

The COVID-19 outbreak has accelerated the digitisation of Malaysia’s economy and I fully expect that trend to continue in the coming years. Added to that, I anticipate a growing focus on greening of the economy, and more advanced manufacturing investment, particularly as companies diversify their supply chains to mitigate against the risk of the type of disruption we have seen in recent months.

Are there any other related points that you would like to raise regarding Malaysia’s economy and legal services?

Since my arrival in Kuala Lumpur, I have been pleased to support the Law Society by making the case at every opportunity for liberalisation of the legal services sector, and I will continue to do that.

It seems to me that the case for liberalisation grows ever stronger, particularly as Malaysia ramps up its efforts to attract foreign investment and secure its position as a regional hub within ASEAN. Liberalisation would benefit Malaysian lawyers, particularly the younger generation, give Malaysia the opportunity to develop as a regional legal hub, and make the country even more attractive to international investors.

More information

We would like to thank high commissioner Charles Hay and his team at the British High Commission in Malaysia for their contributions to this piece.

If you're interested in our work in Malaysia or need more information, contact international@lawsociety.org.uk.