Magic circle firms will not extend their Asian network into Malaysia despite moves to open up the legal market to international firms.
Until now the Malaysian legal market has been closed to international law firms. Now the Malaysian government is planning to allow international firms to launch in the region to practise purely Islamic finance.
Despite the opportunity to establish a Malaysian base, Allen & Overy (A&O) and Clifford Chance sources say the magic circle firms are unlikely to apply for a licence.
An A&O partner said: “This has been discussed for a long time now. It’s largely being led by the Malaysian central bank. It’s very difficult for any firm to make a business case to launch with just one very specific practice area. It doesn’t really make sense.”
In 2007 The Lawyer reported that the Malaysian central bank, Bank Negara Malaysia, was preparing draft legislation to amend Malaysia’s Legal Profession Act to permit entry for foreign law firms.
A magic circle partner said: “In terms of bond issuance there haven’t been a high number of sukuks issued in Malaysia in recent years. You can’t expect an international firm to launch for just one practice that’s not particularly vibrant at the moment.”
In 2002 A&O advised the government of Malaysia on the first internationally marketed sukuk. More recently the firm advised Malayan Banking Berhad on its $300m (£198.7m) sukuk in 2007.
As well as the magic circle, Norton Rose has historically been involved in the Malaysian Islamic finance market.
The firm acted for British Petroleum on its Islamic working capital facility for a Malaysian petrochemicals subsidiary.
Norton Rose chairman Stephen Parish said: “We welcome the opening up of Asian legal markets and will always consider options to launch. However, I think that launching a pure Islamic finance practice would be a difficult thing to do. You need to have the opportunity to provide full-service capabilities for it to be a worthwhile venture.”
The initiative, being led by the central bank of Malaysia, has been met with criticism by the Malaysian Bar Council. The council is understood to see deregulation as detrimental to the local legal market and as a hinderance to the growth of Malaysian firms.
A magic circle partner said: “It could potentially be a bit of a flop. Local firms aren’t impressed and international firms don’t want to take the chance during such strained economic conditions. I can’t see many firms being genuinely interested.”
UK lawyers say they still view the Middle East as the main centre for Islamic finance, viewing an on-the-ground presence in Kuala Lumpur as unnecessary for maintaining a credible Islamic finance practice.
And with financial institution clients working mainly from financial centres such as Hong Kong, international firms see even less value in launching an Islamic finance-focused office in Kuala Lumpur.
A UK partner said: “If you have Middle Eastern offices you probably don’t need to worry too much about Malaysia. International opportunities are always welcomed but this isn’t as exciting as it may first appear.”