Bad marriages or wedded bliss?

But the biggest question swirling around Islamic finance in Malaysia is whether foreign firms will be allowed in to the market to work on deals in this area. Although a select few law firms - such as UK's Eversheds, which enjoys a strategic alliance with Kuala Lumpur's Shahrizat Rashid & Lee - have a presence in the country, there is increasing pressure both internally and abroad, for a more comprehensive structural reform of the Malaysian legal market in this area. And the lion's share of medium to large firms spoken to by ALB indicated Teo Bong Kwang, their support for the entry of foreign firms - although there was great disagreement as to the details, and whether such a liberalisation should be confined to allowing just a handful of overseas players to set up shop in Kuala Lumpur, with their ambits limited to international Islamic finance transactions, or whether an open slather model is more appropriate. While the Malaysian Bar Council has been dragging its heels on the issue for years, the country's central bank, Bank Negara, has been pushing hard for its proposal to allow a maximum of five firms from overseas to come to Malaysia with a licence to work solely on Islamic finance transactions, and has recently launched an international campaign to promote the country as a hub of Islamic finance. The hinges of the door keeping foreign firms out are squeaking as players from the US, Europe and Australia are backed in their calls for openness by the World Trade Organisation and trade agreement negotiators, all of whom are calling for greater market access.
Indeed, the debate seems to be characterised by two sides who are looking at the same question from very different perspectives - and Malaysia's top lawyers say that the bar council lacks the perspective to see over the horizon and appreciate the long-term advantages that foreign law firms could bring not just to the local legal market but to the country and economy as a whole.
"The bar council is very concerned with things like human rights and constitutional rights and indigenous rights", notes Zul Rafique partner Mariette Peters, who says that while all these concerns are legitimate, she and many others would like to see the bar council focus more on the business of law. Foreign firms looking for a base to launch complex, international Islamic finance deals have plenty of options, Kuala Lumpur's major players say, and failing to welcome them only serves to chase money and talent overseas.
The presence of international firms would also give local firms the impetus they need to keep their skills on an equal footing with the world's best practice. "Obviously, we'd like to see Malaysian law firms doing this sort of work but if foreign firms wind up here doing it, then that means that Malaysian firms will simply have to improve the quality of their work to compete. That's why we're not really opposed to the entry of foreign firms (under Bank Negara's proposal", says Muthanna. "The reality is that, in Malaysia, the number of firms that can do this sort of work isn't more than 10", adds Muthanna, suggesting that the smaller firms whom the bar council is trying to protect from foreign predators have misplaced concerns. "What Bank Negara has gotten absolutely right is their understanding that if you want to make Kuala Lumpur a dynamic hub for international Islamic finance, then you have to have all the key players physically here", comments Loong. "That means the bankers, the originators, the market makers, and their service providers, including the lawyers. These players are going to promote Malaysia as an originating point, and you need the foreign law firms to advise out of Kuala Lumpur on instruments that are regulated by US or UK law. "They have a lot of clarity. The bar council doesn't have a lot of clarity on this issue, and they're still operating under the mindset that these guys will come in and make inroads on their local turf, which I think is incredibly small minded."
While support for the entry of international law firms into the Malaysian market may be strong among the country's legal elite, the question of what form such an entry should take remains controversial. Should international firms be allowed only to practice Islamic finance, working on international deals from their own stand-alone offices? Or is a more Singaporean model, with its joint law ventures, and all that implies, appropriate? While in theory, joint ventures offer a host of opportunities for local law firms, from the perspective of lawyers watching from their towers in Kuala Lumpur, the JLV model is far from perfect.
"There's definitely some concern that [under the JLV model] foreign law firms might not transfer technology and knowledge, and that they wouldn't really integrate with the local legal community", says Tay. Speaking for himself, he would rather see foreign firms set themselves up strictly as offshore practices. "We know, from watching Singapore's experience, that often the two constituent firms of a JLV have two different agendas. One wants to do local work and quite jealously guards its turf, and meanwhile the foreign firm doesn't share what it's doing. The scope is very different - they're sleeping in the same bed but are having different dreams". Indeed, says Loong, "big city or New York law firms aren't interested in Malaysian law and say the whole need for a JLV is irrelevant if all you want to do is practice English or American law with a physical presence here." Not everyone agrees that JLVs are completely irrelevant to Malaysia's future, however. "The major key to the model is whether or not the foreign firms are willing to share information," says Albar. "But we also recognise that there's certain expertise which can come from foreign firms. Certainly these things can sometimes be a bit like a forced marriage, but we know the problems with the Singapore model; we know the weaknesses and we can take those into account."

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