CORPORATE VALUES - Labuan IBFC · 4 LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE I am pleased...
Transcript of CORPORATE VALUES - Labuan IBFC · 4 LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE I am pleased...
Philippines
South Korea
JapanChina
Hong Kong
Australia
Indonesia
Singapore
VietnamIndia
Thailand
CORPORATE VALUES• Integrity, Commitment & Professionalism• Open & Honest Communication• Teamwork• Business & Stakeholder Oriented• Continuous Learning
MISSION STATEMENTLabuan FSA shall ensure a sound, stable and dynamic
Labuan International Business and Financial Centre for Asia, by committing to the highest principles and core values.
1ANNUAL REPORT 2018
CO
NT
EN
TS
TABLE OF
MISSION STATEMENT & CORPORATE VALUESBUSINESS OF THE LABUAN IBFC // 2CHAIRMAN’S STATEMENT // 3DIRECTOR GENERAL’S REPORT // 6CORPORATE INFORMATION // 11• Organisational Structure• Subsidiaries• AuthorityMembersofLabuanFSA• SeniorManagementofLabuanFSA• AdvisoryGroupsofLabuanFSA• InternationalMemberships• EventHighlights2018
CORPORATE GOVERNANCE // 25• GovernanceFramework• Accountability• InternalAudit• ExternalAudit• Integrity• EnterpriseRiskManagement
LABUAN IBFC INDUSTRY PERFORMANCE // 39• Companies• TrustCompanies• Insurance• Banking• InternationalCommodityTrading• Leasing• InnovativeFinancialServices• WealthManagement• CapitalMarket• Exchange
POLICY DEVELOPMENT // 55• PrudentialPoliciesDevelopment• BusinessPoliciesDevelopment • TaxPolicyDevelopment• FacilitatingLabuanIBFC’sIslamicFinanceInitiatives• Anti-MoneyLaunderingCombatingTheFinancingofTerrorism
SUPERVISORY ACTIVITIES // 65• Supervision• InvestigationandEnforcement
FINANCIAL STATEMENTS // 69• StatementbytheMembersoftheLabuanFinancialServicesAuthority• StatutoryDeclarationbytheOfficerPrimarilyResponsibleforthe FinancialManagementofLabuanFinancialServicesAuthority
• StatementsofFinancialPosition• StatementsofComprehensiveIncome• StatementsofChangesinReserves• StatementsofCashFlows• NotestotheFinancialStatements
2 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
BUSINESS OF THE LABUAN IBFC
LABUAN COMPANY
LABUAN COMPANIES CAN BE INCORPORATED OR REGISTERED TO CARRY OUT EITHER TRADING OR NON-TRADING ACTIVITIES IN LABUAN. TheincorporationofLabuancompaniesisthroughthe“COR@L”system,whichisanonlinecoreregistrationsystemthatpromotesconvenienceandsecuritytoitsuserswithreal-timeaccess.UponlodgementofcompletedocumentationandpaymentoffeesaswellasclearancefromtheduediligenceprocessconductedbyLabuanFSA,aLabuancompanycanbeapprovedforincorporationorregistrationwithin24hours.TheLabuanCompaniesAct1990providestheincorporation,registrationandadministrationofLabuancompanies.
WEALTH MANAGEMENT
LABUAN IBFC OFFERS A COMPREHENSIVE ARRAY OF WEALTH MANAGEMENT PRODUCTS, EITHER CONVENTIONAL OR ISLAMIC, THAT ARE SUITABLE FOR HIGH NET-WORTH INDIVIDUALS, FAMILY OFFICES AND OTHER WEALTH MANAGERS NEEDING STRUCTURES FOR EFFICIENT WEALTH TRANSFER AND INHERITANCE MANAGEMENT. TherelevantActsrelatedtowealthmanagementincludetheLabuanTrustsAct1996andtheLabuanFoundationsAct2010thataccordtheestablishmentofawidediversityofstructuressuchastrustsandfoundations.
BANKING
A LABUAN BANK CAN BE SET UP AS BRANCH OR SUBSIDIARY OF A LICENSED BANK OR AN ESTABLISHED FINANCIAL INSTITUTION OR FINANCIAL SERVICES PROVIDER SUPERVISED BY A COMPETENT REGULATORY AUTHORITY IN THE COUNTRY OF ORIGIN. LabuanbanksprovideahostofservicesinbothconventionalandIslamictocatertothegrowingdemandfrominvestorsbothdomesticandinternational.TheservicesprovidedbyLabuanbanksincludecreditfacilities,receivingdeposits,investmentbankingservices,Islamicbankingbusiness,orsuchotherapprovedactivities.AllLabuanbanksaregovernedandregulatedundertheLabuanFinancialServicesandSecuritiesAct2010.
LEASING AND COMMODITY TRADING
LABUAN IBFC OFFERS NICHE FINANCIAL PRODUCTS SUCH AS LEASING AND COMMODITY TRADING TO CATER FOR THE NEEDS OF INVESTORS. Leasingisthebusinessoflettingorsublettingpropertyonhirefortheuseofsuchpropertybythehirer,regardlesswhetherthelettingiswithorwithoutanoptiontopurchasetheproperty.LabuanIBFChasbeenajurisdictionfortheleaseofaircrafts,shipsandotherheavymachineryforuseintheaviationandoilandgasindustries.LabuanleasingbusinesscouldbetransactedviaconventionalmeansorinaccordancewithShariahprinciples.
Commoditytradingisforthetradingofphysicalproductsandrelatedderivativesinpetroleumandpetroleum-relatedproductsincludingliquefiednaturalgas.UndertheGlobalIncentivesforTrading(GIFT)programme,asetofincentivesareofferedthroughtheestablishmentoftheLabuaninternationalcommoditytradingcompaniesfortradersandtradinghousestouseMalaysiaastheirinternationalcommoditytradingbase.LabuanleasingbusinessandcommoditytradingbusinessaregovernedundertheLabuanFinancialServicesandSecuritiesAct2010.
INSURANCE
LABUAN INSURANCE BUSINESS INCLUDE GENERAL, LIFE, REINSURANCE AND CAPTIVE INSURANCE. Asidefromtheconventional(re)insuranceservices,LabuanIBFCalsooffersIslamic(re)insurance,betterknownas(re)takafultocaterforthoseseekingShariah-compliantprotection.Theinsurancebrokers,underwritingmanagersaswellasinsurancemanagerscompletethesupplychainbyofferingtheneededintermediaryserviceswithintheinsuranceindustry. TheLabuan(re)insuranceactivitiesaregovernedbytheLabuanFinancialServicesandSecuritiesAct2010.
FINTECH-RELATED BUSINESS
LABUAN IBFC’S RAPID EMBRACE OF FINANCIAL INNOVATIONS AUGURS WELL FOR THE INCREASING ADOPTION OF FINANCIAL TECHNOLOGY (FINTECH) RELATED BUSINESS IN THE CENTRE VIA ITS READY SUITE OF STRUCTURES AND SOLUTIONS. AcircularonInnovativeFinancialServices(IFS)wasissuedbyLabuanFSAtofacilitatethesetting-upofinnovativefinancialservicesbusinesses.InvestorscanleverageontheLabuanmoneybrokinglicencetoprovideplatformfortradingofdigitalassets.Additionally,therelevantlawsandguidelinescanalsofacilitatecredittokenbusinessandpaymentsystemoperatorstosetupIFS-relatedactivitiessuchasdistributedledgertechnologyanddigitalcurrenciesinLabuanIBFC.
3ANNUAL REPORT 2018
CHAIRMAN’S STATEMENT
DATUK OH CHONG PENGChairman
CHANGE WAS THE PREVAILING THEME IN 2018 FOR THE LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE (IBFC). THIS WAS A MILESTONE AFTER 28 YEARS BECAUSE THE CENTRE HAD EMBARKED ON A TRANSFORMATIONAL PLAN TO EXPAND ITS ROLE IN ORDER TO BETTER SERVE THE BUSINESS, INVESTMENT AND INTERMEDIATION NEEDS OF THE REGION ESPECIALLY ASEAN.
WITHBUSINESSPRIORITISATIONANDFISCALMODERNISATIONGIVENPROMINENCE, THEPLANALSOENTAILEDLABUANIBFCENHANCINGFURTHERITSECONOMICCONTRIBUTIONTOBOTHTHEISLANDASWELLASTHENATION.WHILETHEFORMERWASACONSOLIDATIONOFITSPASTBUSINESSFOCUSES,THELATTERWASINDEEDATURNINGPOINTWITHTHECENTREMODERNISINGITSTAXINCENTIVESTRUCTUREFORBETTERFISCALEFFICACY.THISHASBEENATIMELYREFORMTOEVOLVELABUANTOKEEPPACEWITHTHEECONOMICNEEDSOFTHEISLANDANDMALAYSIA.
4 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
IampleasedtosharethatLabuanIBFChadperformedwellforthetwomajorassessmentsbytheOECD:
• ForthePeerReviewAssessmentontaxtransparenciesandtheeffectivenessofexchangeofinformation,Malaysia,includingLabuanwasrated‘LargelyCompliant’.
• AsregardstheForumonHarmfulTaxPractices,afterdialogueswiththeOECDsince2017androllingoutthepolicychanges,Labuan’sratingwasraisedto ‘NotHarmful’.
ThesebeartestamentstoLabuanIBFC’scontinualcommitmenttoensureregulatoryframeworkandpracticesarereflectiveoftheinternationalstandards’requirementsandbestpractices.
TheAuthorityhascontinuedwithitsprudentialupscalingtoensurethemarket’songoingstabilityandsoundness.Ofnoteweretheharmonisationandenhancementsmadetothecorporategovernancerequirementsforthebankingandinsuranceinstitutions.Thishasbeenfollowedbycapitalregulationsproposedfortheinsuranceindustrytobeintandemwithinternationalnorms;arisk-basedcapitalfor(re)insurancebusinessandamorerefinedcapitalmeasurementforcaptives.
Strongsupervisioniskeytoensurethatnewregulationsachievetheirintendedresults.ForahostmarketsuchasLabuanIBFC,theAuthoritybelievesinbeingpracticalinitsenforcement.Leveragingonclosetieswithkeyregulatoryauthoritiesaspartofitshome-hostsupervisoryarrangement,theAuthorityenteredintoaMemorandumofUnderstanding(MoU)withSeychellesFinancialServicesAuthorityinOctober2018,andanotherwithChinaBankingandInsuranceRegulatoryCommissioninMarch2019.BothMoUsareexpectedtofostergreatercooperationespeciallyforcross-bordersupervisorymonitoring.
Asidefromprudentialsupervision,emphasisoneffectiveanti-moneylaunderingandcombatingthefinancingofterrorism(AML/CFT)regulationsandmonitoringremainsastheCentreupholdsitscommitment,togetherwithMalaysia,asamemberoftheFinancialActionTaskForce.TheAuthoritywillcontinuetobevigilantsothatpre-emptivemeasurescanbeundertakentomitigateanyemergingmoneylaunderingorterrorismfinancingrisks.
ToensuretheCentreprogressestobecomethemarketofchoicefortheregion,businessanddevelopmentalinitiativescontinuetobeimplementedtoattractnewbusinessandtoopportunisedemandsoftheemergingmarket.TheseincludetheAuthority’sannouncementonInnovativeFinancialServices(IFS)towelcomeFinTechwavesontotheCentre’sshores. Insteadofasandboxapproachaspreferredbyotherjurisdictions,IFSstartupsareopenlypermittedsubjecttomeetingtheminimumregulatoryrequirements.Inadditiontonewproductsandservices,businessguideswerealsoissuedoninsuranceofferings,suchasLabuancaptivebusinessandinsurance/underwritingmanagers,aswellasonsukukissuances.Ibelievethatthispromotesmarketawarenessonexistingofferings,boostsdemandandspursbusinessgrowth.
Despitethevolatileglobaldynamics,IampleasedtohighlightthattheCentreremainedresilientwithexpandingbusiness.The2018resultsshowedthattheCentrerecordedanotheryearofstrongperformancewithgrowthacrosskeysectors.Thedouble-digitgrowthinnewcompanyincorporationcontinuetoreflecttheCentre’sstrategiclocationinthemiddleofAsia’sexpandingeconomies.Thegrosspremiumsoftheinsurancesectorgrewtoasix-yearhigh,whilethebankingbusinessmaintaineditsgrowthmomentum.
WiththeAuthority’spromotionofIFS,therehavebeenaninfluxofplayersthatofferFinTechpropositionsrangingfromdigitalcurrencytrading,digitaltokenstoexchangesin2018.
EVALUATIONSWEREALSOANOTHERRECURRENTFEATUREIN2018FORTHECENTRE.SIMILARTOOTHERJURISDICTIONSINCLUDINGINTERNATIONALFINANCIALCENTRES,LABUANIBFCWASASSESSEDBYTHEORGANISATIONOFECONOMICCO-OPERATIONANDDEVELOPMENT(OECD),ONITSCOMPLIANCETOINTERNATIONALTAXSTANDARDSANDCONFORMITYTOFISCALACCEPTABLEPRACTICES.SIGNIFICANTEFFORTSWEREMADEBYTHEAUTHORITYTOCOLLABORATECLOSELYWITHTHEMINISTRYOFFINANCE,RELEVANTAGENCIESANDTHEINDUSTRYTOENSURETHECENTRE’SRESPONSESANDFEEDBACKMEETTHEASSESSORS’EXPECTATIONS.
CHAIRMAN’S STATEMENT
5ANNUAL REPORT 2018
WhiletheIFSareencouraged,theAuthorityhascontinuedtoensurethatthebusinessesaregovernedbysuitableregulationstoensureprofessionalconduct,transparencyandthatcustomers’interestsarenevercompromised.
AsatDecember2018,LabuanIBFChas6,031activecompanieswhichincludedmorethan500Labuanlicensedfinancialinstitutionsacrossdifferentsectors.AsthesecondlargestGDPcontributingsectorfortheIsland,thesebusinesseswhichcurrentlyemployabout6,000people,havecertainlycushionedtheeconomicslowdownduringtheoilandgassector’sslump.Infact,newsubstantialrequirementswhichhascomeintoeffectin2019willseeLabuanentitiescontributingmoretotheIsland’seconomyintermsoflocalemploymentandspending.ThiswillcertainlyensuretheIsland’seconomicdevelopmentgrowsintandemwithLabuanIBFC’sbusinessexpansion.
AsthebusinessesofLabuanIBFCgrowwithincreasingcomplexity,especiallywiththeemergingtech-basedventures,thereisaneedtoensureasteadysupplyofprofessionalandskilledtalentswithrelevantbusinesscompetencies.Bearingthisinmind,theAuthorityhasfocusedonhumancapitalupscalinginitiativescomprisingtechnicalandsoft-skillprogrammesforboththemarketandourstaff.TheAuthorityhasalsosuccessfullyimplementedstructuredtalentmanagementanddevelopmentforsuccessionplanningpurposes.Theseinitiativeswillcontinuouslybedriventogetherwiththeindustry.
AspartoftheIsland’skeystakeholders,LabuanFSAhascontinuedtohostcorporatesocialresponsibility(CSR)programmesthatinvolvetheLabuancommunity andotherrelevantagencies.Tofostercloserlinkswiththelocals,theAuthorityorganisedvariousactivitiesthroughouttheyearwhichincludeddonationdrives;communityand
charitableevents;educationalandawardsprogrammesaswellascommunity-basedeventsrelatedtohealthandwell-beingawareness.
Movingforward,thegrowthtrendoftheAsiaPacificmarketwillcontinuetopresentvastopportunitiesforLabuanIBFCtoserveasaplatformforbusinessestoexpandinthisregion.LabuanFSAwillensurethattheLabuanIBFC’sstrongreputationasawell-regulatedandbusiness-friendlyhubispreservedthroughtheadoptionofinternationalstandards,strongsupervisoryregimeandpracticalregulations.Inaddition,theAuthoritywillalsocontinuetoadapttochangingbusinessdemands,technologicaladvancementsandbusinessdevelopmentsfromtheinternationalmarket.ItisparamountthattheCentreremainsviableandcontinuestosupporttheeconomicwell-beingoftheislandofLabuanandMalaysia.
OnbehalfofthemembersoftheAuthority,IwishtotakethisopportunitytoputonrecordourappreciationtotheadvisorygroupsofLabuanFSA,governmentdepartmentsaswellastheindustryfortheirinvaluablesupportinthedevelopmentofLabuanIBFC.Also,mygratitudeandappreciationtoTanSriMuhammadbinIbrahim,formerChairman,andTanSriRanjitAjitSingh,Dato’KhodijahAbdullahdanDato’ZahrahAbdWahabFenner,formerAuthoritymembers,fortheirguidanceduringtheirtenurewiththeAuthority,particularlyduringthetransformationphase.IwouldliketowelcomeMr.AdnanZaylanibinMohamadZahidandMr.HazimbinJamaluddinasnewmembersoftheAuthority.TothestaffofLabuanFSA,thankyouforyourhardworkfortheyearandIhopetoacquirethesameorevengreaterdedicationfromeveryoneaswemoveintoachallenging2019.
CHAIRMAN’S STATEMENT
6 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
DIRECTOR GENERAL’S REPORT
THE YEAR 2018 HAS BEEN A POSITIVE ONE FOR LABUAN IBFC IN BUSINESS DEVELOPMENT AND POLICY ADVANCEMENT. THE CENTRE MAINTAINED ANOTHER YEAR OF GROWTH TRAJECTORY THAT WAS LAUNCHED ON THE MOMENTUM FROM THE PREVIOUS YEAR. THIS ACHIEVEMENT REAFFIRMS THE RESILIENCE OF OUR POLICIES AND REGULATIONS THAT HAVE ENABLED THE INDUSTRIES TO WEATHER GLOBAL CHALLENGES AND CAPITALISE ON INHERENT STRENGTHS AND OPPORTUNITIES OF THE CENTRE TO CONTINUE GROWING THE BUSINESSES DURING THE YEAR.
THEPRESENCEOFINTERNATIONALFINANCIALINSTITUTIONS,INTERMEDIARIESANDPROFESSIONALSERVICEPROVIDERSNETWORKCONTINUEDTOBOOSTTHEEXPANSIONOFTHELABUANFINANCIALSERVICESOFFERINGSANDCONTRIBUTEDTOTHEINCREASEINVOLUMEOFACTIVITIESASWELLASTHEINCREASEOFLABUANENTITIES.
DANIAL MAH BIN ABDULLAHDirectorGeneral
7ANNUAL REPORT 2018
FORTHEYEARUNDERREVIEW,NEWCOMPANYINCORPORATIONRECORDEDA
12.5%INCREASETOBRINGTHETOTALNUMBEROFLABUANCOMPANIESTO15,260.
THESECOMPANIESWEREOFGLOBALREPRESENTATION;AMAJORITYORIGINATED
FROMASIAANDTHEPACIFICREGION,SETUPFORVARIOUSREGIONALTRADING
PURPOSESANDHOLDINGOFINVESTMENTS.
DIRECTOR GENERAL’S REPORT
TheLabuaninternationalbankingindustryisthecoreofLabuanfinancialsystemwithintegratednetworkofinternationalandregionalbanks,marketsandawiderangeofproductofferings.Duringtheyear,twonewforeignbankswerelicenced,bringingthetotalnumberofLabuanbanksto55.Despiteachallenginginternationalfinanciallandscape,Labuanbanksremainedsoundandresilientwithrobustcapitaladequacywhichstoodwellabovetheminimuminternationalstandards.TheLabuanbankingsectoralsomaintaineditsgrowthtrendinfinancinganddeposits.
Thetotalloansoutstandingexpandedby19.1%toUSD33.2billionwith20.2%orUSD6.7billionworthoffinancinggrantedtothemanufacturingsector.Totalcustomerdepositsroseby14.6%fromUSD8.3billionin2017toUSD9.5billionin2018.ThegrowingpreferenceinShariahfinancialsolutionsgloballyhaspositiveripplestothegrowthofIslamicfinanceinLabuan.Similartoconventionalbanking,theIslamicbankingsectormaintaineditsgrowthinfinancinganddeposits.ComplementingtheMalaysianIslamicfinance,LabuanIBFCwillcontinuetoenhanceitsglobalfootprintinIslamicfinance,particularlythroughitsactiveparticipationintheInternationalIslamicFinancialMarket.
2018wasathrivingyearfortheLabuaninsuranceindustrywithimpressivebusinessperformanceingrosspremiumsunderwrittenandentranceofnewinsuranceplayers.Theinsurancesectorregisteredadouble-digit
growthof19.1%orUS1.7billionworthofgrosspremiumsunderwritten,wheremorethanhalfofthetotalpremiumwasunderwrittenbythereinsurancebusiness.ThisreflectsLabuan’sstrongreinsurancecapacityprovidedbywell-knowninternationalplayersandbodewellfortheCentreinitsroletofittinglyservereinsurancemarketdemandintheregionandbeyond.Non-residentscontinuedtodominatetheinsurancebusinessaccountingfor64.7%ofthetotalpremiumsunderwrittenwiththeremaining35.3%inMalaysianrisks.
TheLabuanIBFCbusinesspropositionsremainedattractivetoattractnewinvestorsofgeographicaldiversityintotheCentre.Duringtheyear,22newinsurancelicencesweregranted;comingmainlyfromAsiaPacificandEuroperegionsandhasfurtherdiversifiedthemixofinternationalandregionalinsuranceandinsurance-relatedoperatorsinLabuanIBFC.Thisbringsthetotalnumberofinsurancecompaniesto216ascomparedto203oftheprecedingyear.
Theyear2018sawsomerationalisingandrestructuringoftheleasingcompaniestocomplywiththeneweconomicsubstantialrequirements.Thetotalnumberofleasingcompaniesdecreasedby2.4%from380to371in2018.Despitethedecrease,thetotalcumulativeleasedassetsgrewtoUSD53.8billionascomparedtoUSD48.8billionin2017.Theoilandgas,andaviationsectorsremainedthetwokeybusinessesthatuseLabuanleasingstructuresaccountingfor61.3%and37.9%respectivelyofthetotal
8 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
leasedassets.Intermsofgeographicaldistribution,70.4%oftheleasingcompaniesoriginatedfromtheAsiaPacificregionreflectingLabuanIBFC’sstrategicpositioninsupportingtheoilandgassectorintheregion.
Theyear2018sawsomerationalisingandrestructuringoftheleasingcompaniestocomplywiththeneweconomicsubstantialrequirements.Thetotalnumberofleasingcompaniesdecreasedby2.4%from380to371in2018.Despitethedecrease,thetotalcumulativeleasedassetsgrewtoUSD53.8billionascomparedtoUSD48.8billionin2017.Theoilandgas,andaviationsectorsremainedthetwokeybusinessesthatuseLabuanleasingstructuresaccountingfor61.3%and37.9%respectivelyofthetotalleasedassets.Intermsofgeographicaldistribution,70.4%oftheleasingcompaniesoriginatedfromtheAsiaPacificregionreflectingLabuanIBFC’sstrategicpositioninsupportingtheoilandgassectorintheregion.
TheLabuancommoditytradingbusinessalsoregisteredaslowergrowthintermsofnumberofnewentrants.Thisisduetothenewrestrictionundertheguidelinestoallowonlypetroleumandpetroleum-relatedcommoditiestotradebytheLabuanInternationalCommodityTradingCompany(LITC).However,despitethereductioninthenumberofLITC,theleveloftheindustryrevenuerosesignificantlyby40.4%toUSD33.4billionascomparedtoUSD23.8billionin2017,contributingtoahikeof63.2%inprofitbeforetaxtoUSD1.2billion.Significantly,LabuancommoditytradingbusinessgenerateshighemploymentandtalentdevelopmentopportunitytoMalaysianswhereoutofthetotalof698employees,656areMalaysians,ofwhich105ofthemarehilly-skilledprofessionaltraders.
Astheworldmovestowardstechnology-basedsolutionstoprovidefinancialproductsandservices,LabuanIBFChascontinuedtobringinnovationtothemarketbyprovidingaFinTech-friendlybusinessenvironmentforinnovativefinancialservicestogrow.LabuanFSAhasputinplacetheregulationstofacilitatevariousfinancial-relatedbusinessincludingbanking,insurance,money-broking,credittoken,IslamicfinancetoadoptFinTechintheirproductsandservicesofferings.Indeed,LabuanIBFCisseeingstrongpositivebusinesstrendinginFinTechrelatedfinancial
servicesinstitutionsestablishingpresenceinLabuantoconductsuchbusiness.Underscoringthis,istheneedtoprovidearobustregulatoryframeworkforthedigitalandFinTechbusinessinLabuanIBFC.
Asweenterthe29thyearinourjourneyasanIBFC,thebusinessenvironmentremainschallenging.Ourpoliciesandrulescontinuinglyneedtobeadaptivetointernationalregulatorychanges,globalcompetitionandtechnologicaladvancement.Inrecentyears,LabuanIBFC,likeotherinternationalfinancialcentres,haveintensifiedregulatoryreformsonnewinternationalstandardsrelatingtotransparency,disclosure,anti-moneylaundering,exchangeofinformationandharmfultaxpractices.IFCsaroundtheworldarebeingassessedbymulti-lateralbodiesandLabuanisnoexceptiontothis.Operatinginthisenvironment,regulatoryauthoritiesacrosstheglobehavebeenembeddingchangesandintroducingnewrulingstoensuretheircentresremainrelevantandcompliantwithinternationally-acceptedstandardsandpractices.
Guidedbyourmissiontoensureasound,stableanddynamicCentre,LabuanFSAhascontinuedtoevolveintandemwiththetransformationplantosteertheCentreonthepathofthisnewglobalbusiness.WehavemadesignificantstridesinimplementingmajorpoliciestoreinforcetheCentre’scompetitiveness,maintainstabilityandelevateinternationalrecognitionofLabuanIBFC.In2018,weachievedasignificantmilestonewithmajorchangesinthetaxpolicyandframework,inparticulartheLabuanBusinessActivityTaxAct1990.ThesechangeswouldcomeintoeffectinJanuary2019.AmongstthechangesweretheabolishmentoftheRM20,000taxelection;removalofring-fencingelementsbyeliminatingrestrictionsondealingswithresidentsandinringgit(thelocalcurrency)coupledwiththeintroductionofsubstantialeconomicactivitiesrequirementsinorderforLabuanentitiestoenjoytaxincentivesofLabuanIBFC.
ThisisanecessarydevelopmentfortheCentretoensurethatitstaxregulationsandpracticesareinlinewithinternationalrequirements.Asaresultofthesechanges,Labuanhasbeenassessedas“NotHarmful”undertheOECDForumonHarmfulTaxPractices.Additionally,
DIRECTOR GENERAL’S REPORT
9ANNUAL REPORT 2018
Labuanhasbeenratedas“LargelyCompliant”underthePeerReviewAssessmentintheOECDForumonTaxTransparencyandExchangeofInformation.ThesepositiveassessmentshighlightthatLabuanIBFC’srelevantlegalrequirementandsoundpracticesareinplaceandonparwithinternationallyadoptedstandards.
MOVING FORWARD, A KEY PRIORITY IS TO FACILITATE THE INDUSTRY PLAYERS IN TRANSITIONING TO THE NEW TAX REGIME. THERE IS A NEED TO ADDRESS ALL CONSEQUENTIAL POLICY CHANGES IN THE REGULATIONS AND GUIDELINES, INCLUDING AMENDMENTS IN OTHER RELATED LAWS TO BE CONSISTENT WITH NEW TAX REQUIREMENTS.
Inviewoftheimportanceandimplicationsthatthenewchangeswillbring,ahighlevelcommitteewasformedcomprisingseniorrepresentativesfromtheMinistryofFinance,InlandRevenueBoardandLabuanFSAtoaddressimplementationissuesaswellastoproviderecommendationsoranyrelatedchangestonewtaxframework.ThekeyregulatoryagenciesarecommittedtopreservethelongtermstabilityandbusinesssustainabilityoftheLabuanIBFCindustry.
Operatinginamorecomplexandcompetitiveinternationalbusinessarena,LabuanIBFCneedstosustainitscoreofferingsandlookfornewgrowthopportunities.BusinessdevelopmentwasoneoftheareasthatLabuanFSAfocusedonin2018whereaslewofbusinessguidelineshasbeenenhancedandupdatedtofacilitatebusinessgrowthandnewbusinessadmission.Whilehavingbusinessdevelopments,LabuanFSAremainedattentivetosupervisionandenforcementparticularlyonrisksrelatedtomoney-launderingandotherhighriskfinancialactivities.
Duringtheyear,theAuthoritysteppedupsupervisionandstrengtheneditsmarketsurveillancecapabilitiestomaintainoversightofnon-compliancesandviolationsofLabuanIBFClaws.Moreeffortsweremadeincollaborationandcooperationwithinternationalanddomestic
regulatorsandenforcementagenciesinjointinspectionsandinformationsharing.Enforcementonanti-moneylaunderingandterroristfinancinghavebeenstrengthenedwithmoreinvestigationinitiatedandactionstakentoprotectinvestors’interests.Duringtheyear,LabuanFSAalsoconductedaseriesofoutreachandengagementprogrammesfortheindustrytoenhancereportingofsuspicioustransactions(STR).Thesupervisorymeasureshasresultedintheincreasednumberofenforcementactionscarriedoutincludingbusinesssuspensionandrevocationoflicences.ThenumberofSTRalsoincreasedduetohigherawarenessoftheneedtoreportpotentialcasesthatcouldaffectthereputationoftheLabuanIBFC.
Whilefocusingonitsregulatoryandsupervisoryfunctions,LabuanFSAcontinuedtophaseinthetransformationplantoenhancetheresiliencyandsustainabilityofLabuanIBFC.ThetransformationplanishingedonabusinessmodelthatisaimedatmakingLabuanawell-integratedfinancialandeconomicregionalhub,tobetterservethebusiness,investmentandintermediationneedsoftheregion.Thekeyprioritiesentailedinthetransformationstrategiesarefirstly,toenhanceLabuanIBFC’scompetitivenesstoserveregionalbusinesseswhereLabuanIBFCcanplayamorestrategicintermediatingrole.Secondly,therewouldbegreaterfocusonenhancingfinancialnichebusinesswhileleveragingonthestrengthsofexistingsectorstofurtherdiversifythespectrumoffinancialservicesandproductsinthecentre.Thirdly,thereisaneedtoensurethesmoothimplementationofthenewtaxframeworkin2019byprovidingclaritiesandcertaintiesonthenewrequirementsofthetaxframework.ThetransformationplanwouldreinforcethesynergybetweenLabuanIBFCandtheIsland’sdevelopment.Theeffortsaregearedtowardssupportingtheeconomicdevelopmentoftheislandbycreatingmorebusinesssubstanceandactivities,visibilityandgeneratingmoreemploymentopportunities.Theoutcomesofthetransformationplanwillbemoretangibleandapparentinthenextcoupleofyears.
In2019,theglobalgrowthtrendisexpectedtomoderateunderpinnedbyon-goingglobaleconomicandpoliticalissues.However,theAsiaPacificregionwillremaintheengineofglobalgrowthandLabuanIBFCbeing
DIRECTOR GENERAL’S REPORT
10 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
strategicallypositionedcangrowintandemwiththeregion.LabuanFSAexpectstheyear2019tousherinanotheroutlookofpositivityandbusinessgrowthforLabuanIBFC.
Iampleasedtoannouncethatfortheyearended31December2018,LabuanFSArecordedanincreaseinoperatingrevenueofRM66.03millionascomparedtoRM63.74millionin2017,whileitstotalreservesalsoincreasedtoRM76.81million.
Toconcludemyreport,IwouldliketoextendmyappreciationandgratitudetotheChairmanandMembersoftheAuthorityfortheirsupportthroughouttheyear.IwouldalsoliketothankthestaffofLabuanFSAfortheircommitmentandcontinuouscontributionsin2018whichledtorecordachievementsfortheyear.
DIRECTOR GENERAL’S REPORT
11ANNUAL REPORT 2018
CORPORATE INFORMATION
For further information,please go to: www.labuanibfc.com
12 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
CORPORATE INFORMATION
LABUANFSAWASESTABLISHEDON 15FEBRUARY1996ASASTATUTORYBODYRESPONSIBLEFORTHEREGULATION,SUPERVISIONANDDEVELOPMENT OFTHELABUANIBFC.
OBJECTIVES OF LABUAN FSA
Promote & Develop Labuan IBFCTopromoteanddevelopLabuanasapremiercentreofhighreputeforinternationalbusiness,financialproductsandservices.
Develop National ObjectivesTodevelopnationalobjectives,policiesandprioritiesforthesystematicgrowthandadministrationofinternationalfinancialbusinessinLabuan,andtomakerecommendationstotheGovernment.
Central AuthorityToactasthecentralregulatory,supervisoryandenforcementauthorityoftheinternationalbusinessandfinancialservicesindustry inLabuan.
FUNCTIONS OF LABUAN FSA
Indischargingitsregulatorymandate,LabuanFSAisentrustedwiththefollowingstatutoryfunctions:
• To administer, enforce, carry out and give effect to the provisions of the:
-LabuanCompaniesAct1990 -LabuanTrustsAct1996 -LabuanFinancialServicesAuthorityAct1996 -LabuanFoundationsAct2010 -LabuanFinancialServicesandSecuritiesAct2010 -LabuanIslamicFinancialServicesandSecuritiesAct2010 -LabuanLimitedPartnershipsandLimitedLiabilityPartnershipsAct2010 -AnyotherlawsrelatingtobusinessandfinancialservicesinLabuan
• To ensurethatinternationalfinancialtransactionsareconductedinaccordancewiththelaws;
• To conduct researchandcommissionstudiestodeepenandwidenthescopeofinternationalfinancialservicesinLabuan;
• To make recommendations onthecreationandimprovementoffacilitiestoenhancetheattractionofLabuanasacentreforbusinessandinternationalfinancialservices;
• To collaboratewithLabuanfinancialinstitutionsandindustryassociationsinadvancingthedevelopmentandgrowthofbusinessandfinancialservicesinLabuanIBFC;and
• To advisetheGovernmentgenerallyonmattersrelatingtofinancialservicesinLabuanIBFC.
13ANNUAL REPORT 2018
ORGANISATIONAL STRUCTURE
LABUANFSAISSTRUCTUREDINTOSEVENDEPARTMENTS,NAMELYGROUPINTERNALAUDITANDRISKMANAGEMENT,LEGALANDBUSINESSMANAGEMENT,MARKETDEVELOPMENT,SUPERVISIONANDMONITORING,CORPORATEAFFAIRS,CORPORATESERVICESANDSTRATEGICHUMANCAPITAL.
Supervision 1
Supervision 2
Group Finance
Facilities Management
Group HumanResource Services
AUTHORITY
DIRECTOR GENERAL
ADVISORY GROUPS• International Advisory Panel
• Shariah Supervisory Council
• Financial Stability Committee
AUDIT AND RISKMANAGEMENT COMMITTEE
GROUP INTERNAL AUDIT ANDRISK MANAGEMENT
Group InternalAudit
Risk and PerformanceManagement
BusinessManagement
Registrar ofCompanies
BusinessOperations
Business andTax Development
Prudential andBusiness Policy
Group Legal Servicesand AML Policy
Investigation
Prosecution andExchange of Information
Group LegalServices
AML/CFT
Corporate Communicationand External Relations
Customer Relation
Management Informationand Technology
Group ICT
Industry Reporting andManagement
Information System
Research / Analytics
STRATEGICHUMAN CAPITAL
LEGAL AND BUSINESSMANAGEMENT
MARKETDEVELOPMENT
SUPERVISION ANDMONITORING
CORPORATEAFFAIRS
CORPORATESERVICES
14 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
SUBSIDIARIESTHEPRINCIPALACTIVITYOFPRISTINEERASDN.BHD.ISTOMANAGE THELABUANINTERNATIONALSCHOOLANDLABUANIBFCINC.SDN.BHD. ISTOPROMOTETHELABUANINTERNATIONALBUSINESSAND FINANCIALCENTRE.
100%
100% 100%
LABUANFSA INCORPORATED
SDN. BHD.(Established on 1 December 1999)
PRISTINE ERA SDN. BHD.
(Established on 7 September 1995)
LABUAN IBFC INC. SDN. BHD.
(Established on 14 May 2008)
15ANNUAL REPORT 2018
AUTHORITY MEMBERSOF LABUAN FSA
DatukOhisChairmanoftheLabuanFSA,apositionhehasheldsince16October2018.HeisalsoNon-ExecutiveDirectorofvariousboardofpubliclistedcompaniesincludingMalayanFlourMillsBerhad,DialogGroupBerhad,KumpulanEuroplusBerhad,PUCBerhadandatrusteeofUTAREducationFoundation.PreviouslyhewasChairmanoftheAllianceFinancialGroup,apartnerofCoopers&LybrandMalaysia.Inaddition,hewasalsoagovernment-appointedmemberoftheKualaLumpurStockExchange(nowknownasBursaMalaysia)aswellasmemberoftheMalaysianAccountingStandardsBoard.
DatukOhisaFellowoftheInstituteofCharteredAccountants,EnglandandWales.HewasacouncilmemberoftheMalaysianInstituteofCertifiedPublicAccountantsfrom1981-2002andservedasPresidentfrom1994-1996.
Mr.DanialistheDirectorGeneralofLabuanFSA,theregulatoryauthorityofLabuanInternationalBusinessandFinancialCentre.Mr.DanialassumedthepositionofDirectorGeneralon3October2017.Priortothis,hewastheDeputyDirectorGeneralofLabuanFSA,apositionheheldsince2007.HehasbeenwithLabuanFSAsincetheearlyyearsofitsestablishmentandhasheldvariouspositionswithintheorganisation.
Mr.DanialistheViceChairmanoftheInternationalIslamicFinancialMarketandamemberofitsExecutiveCommittee.HeistheChairmanoftheFinancialStabilityCommitteeofLabuanFSA,LabuanfsaIncorporatedSdn.Bhd.andPristineEraSdn.Bhd.HeisalsoaboardmemberofLabuanCorporation,FinancialPark(Labuan)Sdn.Bhd.andLabuanIBFCInc.Sdn.Bhd.
Mr.DanialhasaBachelorofAccounting(Hons)fromtheUniversityofMalaya,Malaysia;andaMastersinBusinessAdministrationfromtheManchesterBusinessSchool,UK.HeisaCharteredAccountantregisteredwiththeMalaysianInstituteofAccountants.
MR. DANIAL MAH BIN ABDULLAHDirectorGeneral
DATUK OH CHONG PENGChairman
16 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
AUTHORITY MEMBERS OF LABUAN FSA
Dato’AzlanisChairmanofIHHHealthcareBerhad,D&OGreenTechnologiesBerhad,Marine&GeneralBerhadandLabuanIBFCInc.Sdn.Bhd.
Hehasextensiveexperienceinthecorporatesector,includingfinancialservicesandinvestment.PositionshehasheldincludeChiefExecutiveofBumiputraMerchantBankersBerhad,GroupManagingDirectorofAmanahCapitalMalaysiaBerhadandExecutiveChairmanofBursaMalaysiaBerhadGroup.
Dato’AzlanholdsaBachelorofEconomics(Monash)andqualifiedasaCharteredAccountant(Australia).HeisaFellowMemberoftheInstituteofCharteredAccountants,Australia,MemberofTheMalaysianInstituteofAccountants,FellowMemberoftheInstituteofCharteredSecretariesandAdministratorsandHon.MemberofTheInstituteofInternalAuditors,Malaysia.
DatukAliistheChairmanofJcbNextBerhadandENRAGroupBerhad. HeisaboardmemberofGlomacBerhad,CitibankMalaysiaandEkuitiNasionalBerhad(Ekuinas).
DatukAliwastheChairmanoftheSecuritiesCommissionMalaysia(SC)from1March1999until29February2004.HeinitiatedtheCapitalMarketMasterplan,chairedtheCapitalMarketAdvisoryCouncilandhewasamemberoftheNationalEconomicConsultativeCouncilII,theForeignInvestmentCommittee,theOversightCommitteeofNationalAssetManagementCompany(Danaharta)andtheFinanceCommitteeonCorporateGovernance.Ontheinternationalfront,hewasamemberoftheExcoofIOSCO,ChairmanofIOSCO’sAsiaPacificRegionCommittee,ChairmanoftheIslamicCapitalMarketWorkingGroupandtrusteeofAAOIFIandForceofNatureAidFoundation,andalsoAdvisortotheSriLankaSecurities&ExchangeCommission.
PriortohisappointmenttotheSC,hewastheExecutiveChairmanandPartnerofErnst&Younganditsrelatedfirms.HewasappointedanAdjunctProfessorFacultyandthenappointedtotheAdvisoryBoardintheAccountingandBusinessFaculty,UniversityofMalaya.HealsochairedtheFinancialReportingFoundationfromJuly2009toJune2015.
DatukAliisaFellowoftheInstituteofCharteredAccountantsinEngland&Wales(ICAEW),memberoftheMalaysianInstituteofCertifiedPublicAccountantsandtheMalaysianInstituteofAccountants.HeisalsocurrentlyHonoraryAdvisortoICAEWKLCityChapter,HonoraryFellowoftheInstituteofCharteredSecretaries&Administrators(UK)andtheMalaysianInstituteofDirectors.
DATUK ALI BIN ABDUL KADIR
DATO’ MOHAMMED AZLAN BIN HASHIM
17ANNUAL REPORT 2018
AUTHORITY MEMBERS OF LABUAN FSA
Mr.AdnanZaylaniisanAssistantGovernorofBankNegaraMalaysia,responsiblefordevelopmentofthefinancialandinsurancesectors,developmentfinance,IslamicfinanceandoverseestheLegalDepartment.
Previouslyhehadheldresponsibilitiesandoversightoverfinancialmarkets,investment,foreignexchangeadministrationandcurrencymanagement.HeisamemberoftheManagementCommittee,FinancialStabilityCommitteeandReserveManagementCommitteeofBankNegaraMalaysia.
Mr.AdnanhasaBachelorinEconomics,MScinGlobalMarketEconomicsfromLondonSchoolofEconomics,UK,andholdsaMastersinPublicPolicyfromBlavatnikSchoolofGovernment,UniversityofOxford,UK.
Mr.HazimisSecretaryoftheRemunerationPolicyandManagementDivision,MinistryofFinance,Malaysia(MOF).HeisresponsibleforthemanagementofremunerationpolicyandmanagementserviceswhichincludehumancapitaldevelopmentandfinancialmanagementoftheMOF.HealsomanagesthedevelopmentprojectsofMOF.
InacareerwiththeGovernmentthatbeganin1989,Mr.HazimheldseniorpositionsinvariousministriesanddivisionincludingMinistryofHealth,MinistryofHumanResourceandMOF.InMOF,hehasanextensiveyearofexperienceintheTaxAnalysisDivisionandStrategicInvestmentDepartment.
Mr.HazimhasaBachelorinFinancialManagementfromIndianaStateUniversity,USAandholdsaMasterDegreeinBusinessAdministrationfromCityUniversity,USA.
MR. ADNAN ZAYLANI BIN MOHAMAD ZAHID
MR. HAZIM BIN JAMALUDDIN
18 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
1. MR. DANIAL MAH BIN ABDULLAH (DirectorGeneral)2. MR. ISKANDAR BIN MOHD NULI3. MRS. YON ZAHIMAH BINTI IBRAHIM4. MR. SYAHRUL IMRAN BIN MAHADZIR
5. MR. AZUDDIN BIN JASIN6. MR. MOHD RIZLAN BIN MOKHTAR7. MR. JIMMY CHEN SIEW HANG8. MR. WAN AHMAD SANUSI BIN MAHMOOD
SENIOR MANAGEMENT
OF LABUAN FSA
1.
8.
2. 3.
6. 7.
4. 5.
19ANNUAL REPORT 2018
ADVISORY GROUPSOF LABUAN FSA
INTERNATIONAL ADVISORY PANELTheInternationalAdvisoryPanel(IAP)isaconsultativecommitteethatwassetupin2004toprovideguidanceandadviceonthestrategicbusinessdirectionandmarketdevelopmentoftheLabuanIBFC.Thenine-memberpanel,appointedbytheChairmanofLabuanFSA,comprisesprominentindividualsfrominternationalanddomesticmarkets,eachwithuniqueindustryexperienceandexpertise.
FINANCIAL STABILITY COMMITTEETheFinancialStabilityCommittee(FSC)wasestablishedtoassistinpreservingthefinancialstabilityandintegrityoftheLabuanIBFC.ItcomprisesfivemembersfromLabuanFSA,BankNegaraMalaysiaandtheSecuritiesCommissionMalaysia.
SHARIAH SUPERVISORY COUNCILTheShariahSupervisoryCouncil(SSC)comprisesrenownedMalaysianandinternationalShariahscholars.TheSSCreviewstheShariahcomplianceofproposedfinancialinstrumentsregulatedandsupervisedbyLabuanFSAandadvisesLabuanFSAondevelopmentsinIslamicjurisprudencetofacilitate thecreationofnewIslamicfinancialproductsandservicesinLabuanIBFC.
IAP Members:
1. Dato’ Mohammed Azlan bin Hashim- Chairman
2. Mr. Michael Troth3. Mr. Mark Lea4. Dato’ Mohammad Faiz
bin Azmi5. Datuk Dr. Mohd Daud
bin Bakar6. Mr. Chew Seng Kok7. Ms. Pushpa Rajadurai8. Mr. Malcolm Cutts-Watson9. Mr. Iain Johns
SSC Members:
1. Datuk Dr. Mohd Daud bin Bakar -Chairman
2. Dr. Mohamad Akram Laldin -DeputyChairman
3. Dr. Mohamed Ali Elgari Bineid
4. Dr. Engku Rabiah Adawiah binti Engku Ali
5. Dr. Sheikh Nedham Yaqoobi
6. Dr. Syed Musa Syed Jaafar Al-Habshi
FSC Members:
1. Mr. Danial Mah bin Abdullah -Chairman
2. Mr. Syahrul Imran bin Mahadzir
3. Mr. Qaiser Iskandar bin Anwarudin
4. Ms. Salmah Bee binti Mohd Mydin
5. Mr. Aznan bin Abdul Aziz
20 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
International Association of
InsuranceSupervisors
(IAIS)
Group ofInternational
Finance Centre Supervisors
(GIFCS)
Group ofInternational
Insurance Centre Supervisors
(GIICS)
Asia/PacificGroup on
MoneyLaundering
(APG)
InternationalIslamic Financial
Market(IIFM)
International Organisation of
SecuritiesCommissions
(IOSCO)
IslamicFinancialServicesBoard(IFSB)
Financial Action Task
Force(FATF)
1998 1999 1999 2000 2002 2003 2003 2016
INTERNATIONAL MEMBERSHIPS
LABUANFSAISAMEMBERTOTHEFOLLOWING EIGHTINTERNATIONALORGANISATIONSTHATPROMOTEHIGHREGULATORYSTANDARDSAMONGINTERNATIONALFINANCIALCENTRES,ASWELLASENHANCECOOPERATIONTOADVANCE
THEIRDEVELOPMENT.
21ANNUAL REPORT 2018
• LabuanFSAtogetherwithBankNegaraMalaysiaconductedanawarenessprogrammefortheLabuanbusinesscommunitytopromotetheinitiativestoboostbusinessesandtobridgefinancialsectorwiththelocalSMEs.Theprogrammeincludedbriefingonthelatestpolicyandproceduresoffinancingfacilitiesanddebitstructuringschemes.AbriefingwasalsoconductedtothefinancialinstitutionstoincreasetheircapabilitiesandequipthebankofficerswiththeknowledgeonfinancialmattersofSMEs.
• AdialoguesessionwasheldwithkeyrepresentativesfromthevariouslocalLabuanChambersofCommerceandIndustriestoexchangeviewsoncurrentissuesimpactingtheeconomyandbusinessenvironmentinLabuan.
• LabuanFSAheldbilateralmeetingswiththeLabuanIBFCindustryassociations.Atthemeetings,LabuanFSAprovidedtheglobaleconomicoutlookoftheyearandsharedLabuanFSA’sstrategicbusinessplan2018-2020.Themeetingsalsosharedtheemergingtrends,LabuanIBFC’sprospectiveonopportunitiesandchallengesfacingtheinternationalbusinessfinancialcentresaswellasthetransformationplanofLabuanIBFC.
• LabuanFSAincollaborationwithJabatanPeneranganMalaysiaheldtheBudgetTalk2018fortheLabuancommunity.ThebriefinghighlightedtheimpactoftherelevantitemsunderthebudgetthatwererelatedtoLabuan.
EVENT HIGHLIGHTS
2018
QUARTER 1
22 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
• KarnivalKewanganwasheldinLabuanIslandtocreatepublicawarenessonfinancialservicesandservedasaone-stopplatformforthepublictolearnaboutnewinitiativesandopportunitiesinbusinessandfinancialmanagement.Thetwo-dayprogrammeorganisedby BankNegaraMalaysiatogetherwithLabuanFSAandFinancialParkLabuanhasbenefittedallsegmentsofthelocalcommunity.
• LabuanFSAhostedtheInternationalIslamicFinancialMarket(IIFM)38thboardmeetinginKualaLumpur.AseminaronIslamicFinancialMarkets-‘A Broad Spectrum of Horizons and Opportunities – Towards Achieving Sustainable and Balanced Growth in the Islamic Financial Sector’ wasalsoheldtocreategreaterawarenessandunderstandingonthestandardisationeffortsspearheadedbytheIIFM.
• Malaysia,includingLabuanIBFCwasassessedunderthePhaseIIIPeerReviewAssessmentundertakenbytheOrganisationforEconomicCo-operationandDevelopment(OECD).TheassessmentfocusedontheeffectivenessofthelegalprovisionsandimplementationsoftherespectiveprovisionsundertheLabuanIBFClaws.TheoverallratingforMalaysiais‘LargelyCompliant’.
• LabuanFSAattendedmeetingsandforumsofinternationalfinancialcentregroupingsincludingtheGroupofInternationalFinanceCentreSupervisorsandGroupofInternationalInsuranceCentreSupervisors.LabuanFSAalsoattendedmeetingsattheOECD,ParistodiscussonForumonHarmfulTaxPractices.
QUARTER 2
EVENT HIGHLIGHTS 2018
23ANNUAL REPORT 2018
• LabuanIBFCwasawardedtheCaptiveAsianDomicileCategoryAwardattheAsianCaptiveConference2018.TheinauguralawardrecognisedLabuanIBFC’scontributiontoAsian’scaptivemarketandshowcaseitsgreatpotentialintheemergingmarketforcaptiveinsuranceandriskmanagementindustry.
• LabuanFSAconductedabriefingattheAsianDevelopmentBank’sEconomicCorridorDevelopmentforCompetitiveandInclusiveAsiaTrainingProgramme.TheprogrammewastopromoteregionalcooperationandintegrationamongthedevelopingASEANcountries. ItdiscussedissuesandchallengesrelatedtotheeconomiccorridordevelopmentandtoenhancecapacityofcooperationinpursuinginitiativesforsocialandeconomicdevelopmentamongstmemberstheASEANcountries.
• TheannualLabuanInternationalFinanceLectureSeriestitled‘Barbarians at the Gate: Cybersecurity for Business Survival’washeldinOctober.Thespeakershared
insightsonglobalcyberattackrisksandsecuritycontrolsneededincreatingamoreresilientcyberenvironmentforbusinessesinLabuanIBFC.
• BankofChina(Malaysia)BerhadwasappointedasaRenminbisettlementbankinLabuantoenhancetheLabuanIBFC’sfinancialinfrastructureinbringingefficiency,seamlessandcost-effectivereal-timesettlementofRenminbi-denominatedtransactionstotheLabuanfinancialinstitutionsandentities.ThisinitiativeisinlinewiththeincreasingroleofLabuanIBFCinfacilitatingfinancialandtradeinvestmentsaswellastradeflowsintheAsiaandASEANregions.
• LabuanFSAsignedaMoUwiththeSeychellesFinancialServicesAuthoritytofosterclosertiesoncooperationandmutualassistanceinareasofregulationandsupervisionfunctionsundertherelevantlawsofthetwojurisdictions.
QUARTER 3
EVENT HIGHLIGHTS 2018
24 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
EVENT HIGHLIGHTS 2018
• TheDeputyMinisterofFinance,MalaysiavisitedLabuanIBFCinOctoberandwasbriefedbyLabuanFSAonthedevelopmentoftheIBFC.HealsovisitedofficesofthreefinancialinstitutionsinLabuanIBFCtohaveanoverviewofthebusinessoperations.
• LabuanFSAdeliveredapresentationattheLabuanHalalHubConferenceforprospectiveforeignhalalindustryplayers.TheconferencehighlightedonthevaluepropositionsandbusinesspotentialsofLabuanIBFCthatprospectivehalalindustryplayerscantapon.
• Throughouttheyear,LabuanFSAorganisedcommunityprogrammesandsponsoredprojectsthatbenefitthelocalcommunities.Awarenesstalkson‘SafetyandHealth’and‘SMART Retirement Plan and Solution’wereconductedforthecommunitiesinLabuan.Inaddition,acareerfairthemed‘Discovering a Career in Labuan IBFC’washeldattheUniversityMalaysiaSabah,LabuanCampustoraiseawarenessincareeropportunitiesintheLabuanIBFC.
QUARTER 4
25ANNUAL REPORT 2018
CORPORATE GOVERNANCE
For further information,please go to: www.labuanibfc.com
26 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
TheprinciplesofcorporategovernanceareembeddedineveryaspectofLabuanFSA,fromitsdecisionstooperationsandinteractionswithstakeholders.ThegovernanceframeworkisbasedonthespiritoftheMalaysianCodeonCorporateGovernance aswellasinternationalstandardsandbestpractices.AstheregulatorofLabuanIBFC,LabuanFSAiscommittedtoensuringaccountability, integrity and transparency initsgovernanceandstakeholdermanagement.Thestandoncorporategovernanceresonatesthroughouttheorganisation,andisreinforcedbythestrongbusinessethicsanduncompromisingintegrityofouremployeesandindustryplayers.
GOVERNANCE FRAMEWORK ACCOUNTABILITY
LabuanFSAacceptsaccountabilityforitsactionsandisassuredofthesoundnessofjudgementsbecauseofthesupportofvariousdecision-makingstructuresandthestrengthofinternalresources.Adequatechecksandbalancesareinplaceandremainedeffective,responsiveandresponsibleastheAuthorityworkstomeetthemandatedobjectives.
ACCOUNTABILITYAnaccountability structure thatproduceseffectiveness,clarity,responsivenessandresponsibilitywithaviewoftheAuthority’simpactontheexpectedperformanceof
LabuanIBFC
INTEGRITYMechanismsthatenhancetheintegrityoftheorganisation,itsoperationandtheconductofitsemployeesandagents
TRANSPARENCYTransparencyofthe
organisationalconductforthepromotionofanefficientbusinessandfinancial
systemunderLabuanFSA’ssupervision
27ANNUAL REPORT 2018
MINISTER OF FINANCE
AUTHORITY
DIRECTOR GENERAL- International Advisory Panel
- Shariah Supervisory Council
- Financial Stability Committee
ADVISORY GROUPSAUDIT AND RISKMANAGEMENT COMMITTEE
Management CommitteeGroup Internal Audit andRisk Management Department
Risk Management Working Group
Safety and Health Committee
Staff Welfare Fund Committee
Credit Risk and InvestmentManagement Committee
Asset Management Committee
Internal Audit
Risk Management
External Audit
CORPORATE GOVERNANCE
The Authority
Governance Framework
InthehierarchyofLabuanFSA,theAuthorityisthehighestdecision-makingbody.Itcompriseseightprominentmemberswithbackgroundsinbusiness,financial,regulatory,privateandpublicservicessectors.UndertheLabuanFinancialServicesAuthorityAct1996(Act),theDirectorGeneralisdirectlyresponsiblefortheadministrationandday-to-dayoperationsofLabuanFSA.BoththeAuthorityandDirectorGeneralareassistedbytheAuditandRiskManagementCommitteeinfulfillingtheirsupervisoryresponsibilities.
MembersoftheAuthorityareappointedbytheMinisterofFinanceunderSection5oftheActforatermnotexceeding
threeyears.Toreappointanymember,theChairmanhastoobtainapprovalfromtheMinisterofFinance.
TheAuthorityisentitledtodelegateitspowersonspecifiedmatterstocommittees–whichcanbeestablishedunderSection15oftheAct;orpersonsspecifiedthroughtheDelegationofPowersinstrumentunderSection14oftheAct.Accordingly,anumberofcommitteeshavebeenformedwithclearlydefinedtermsofreferencetoprovideinput,insightandinformationonstrategicandoperationalmatterstodepartmentsresponsibleforspecificbusinessfunctions,aswellastoassistthemanagementofLabuanFSAinmonitoringthedevelopmentandimplementationofvariousinitiatives.
CORPORATE GOVERNANCE
28 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
TheAuthorityheldfourmeetingsin2018.AscheduleofAuthoritymeetingsforthewholeyearispreparedbeforetheendoftheprecedingfinancialyear,tofacilitatethemembersindischargingtheirresponsibilitiesattheAuthoritymeeting.
In2018,theAuthoritycontinuedtooverseethemanagementofLabuanFSAthroughthereviewandapprovalofproposalsdiscussedatAuthoritymeetings.Theseincludedbusinesspoliciesandguidelines,corporateactionplan2018,budgetandtheappointmentofadvisorycommitteemembers.Inaddition,theAuthorityauthorisedprocurementofgoodsorservicesvaluedatmorethanRM250,000,reviewedappealfortheapplicationoflicence,andprovidedguidancetothemanagementonLabuanIBFCrepositioningstudyandtaxregime.TheAuthoritywasalsocontinuouslyupdatedonmattersdiscussedattheAuditandRiskManagementCommitteemeetings,andthroughactiveengagementwiththemanagementonprogressofLabuanIBFCindustries,financialpositionofLabuanFSAandperformanceofitssubsidiariesandadvisorycommittees.
The Audit and Risk Management Committee
TheAuditandRiskManagementCommittee(ARMC)isthecentralpillarfortheeffectivegovernanceofLabuanFSA,withtheoversightresponsibilityregardingtheadequacy,qualityandintegrityofLabuanFSA’sgovernance,riskmanagementandcontrolpractices.TheARMCcomprisesfiveindependentmembers.
In2018,theARMCconvenedsixmeetingsandpresidedoverthedeliberationofauditreportsofLabuanFSAanditssubsidiaries,enterpriseriskmanagementassessment,financialstatementsaswellasbudgetrevisionandotherinternalauditactivitiesreports.
Duringtheyear2018,theARMCcarriedoutthefollowingactivitiesindischargingitsfunctionandduties:
CORPORATE GOVERNANCE
Reviewed the implementation of the
annual Internal Audit Plan by Group Internal Audit (GIA)
including the scope, basis of assessments and risk ratings of the proposed
areas of audit.
Reviewed the corrective actions taken by the Management to
address and resolve audit findings identified in the
audit reports.
Reviewed the 2018 budget revision
and 2019 annual budget proposal prior to consideration and
approval by the Authority.
Reviewed and advised the
Management on the Business Continuity
Plan and its implementation.
Deliberated and advised on legal and
supervisory actions on concerned institutions and
proceedings involving Labuan FSA and its
subsidiaries.
Reviewed and advised on the status
and management of strategic, financial, operational, legal and
reputational risks.
Approved the appointment of
consultant for the Vulnerability Assessment
of Labuan FSA’s ICT Infrastructure.
Reviewed the quarterly
and annual financial statements, including
key issues raised by the internal and external auditors and Auditor-
General’s Office.
Reviewed and assessed the appointment or
re-appointment of external auditor for statutory
audit.
1. 5. 9.
6.
4.
7.
8.
2.
3.
29ANNUAL REPORT 2018
INTERNAL AUDITTheGroupInternalAudit(GIA)supportstheARMCindischargingitsresponsibilitiesbyprovidinganindependent,objectiveassuranceandconsultingactivitydesignedtoaddvalueandimprovetheLabuanFSAanditssubsidiaries’operations.ThisfacilitatedLabuanFSAinaccomplishingitsobjectivesbybringingasystematic,disciplinedapproachto
evaluateandimprovetheeffectivenessofriskmanagement,control,andgovernanceprocesses.
GIA’srisk-basedauditapproachfocusesonvulnerableandstrategicrisks,whichareprioritisedaccordingtothestrategicdirectionsusingtheEnterpriseRiskManagementFramework.
CORPORATE GOVERNANCE
RISK-BASED APPROACH
LABUAN FSA’S STRATEGIC BUSINESS PLAN 2018-2020
SPECIAL PROJECT
RiskbasedonoutcomeofEnterprise-wideRiskManagementAssessment(ERM):
• RisksratedasHighandModeratearecoveredinaccordancewiththerecommendedauditcycle.
BasedonLabuanFSA’sstrategicinitiativesfor2018-2020tosupportthefollowingstrategicthrusts:
• Tobemorebusinessfocus• Strongregulatoryandsupervisoryregime• Vibrantcentrewithregionalandinternationalfinanciallinkages• InternalstrategiestoenhanceoperationalexcellenceinLabuanFSA
•Management’srequests•Investigation,ifany
AUDIT UNIVERSE
Follow-up review on outstanding issues in audit reports conducted on quarterly basis (25 days)
Provide advisory comments on procedure manual of other units/departments
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
BusinessOperations
Unit
Registrarof Companies Pristine Era
Sdn. Bhd.
Labuan IBFC Inc. Sdn. Bhd.
Disruptionto Network
Infrastructure and System
Security
LabuanLicensed Auditor
Non-LicensedEntity Involve in Unauthorized
Activities
COR@LSystem
Audit Activities in 2018
30 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
CORPORATE GOVERNANCE
GIAconductedsevenauditreviewsin2018toevaluatecontrolmeasuresestablishedandtheeffectivenessofriskmanagementsystem.Italsoengagedproactivelywithauditedpartiestoensuretheimplementationofappropriateactionstoresolveweaknessesidentified.
Internal Controls
Recognisingtheneedtoinstillclearlinesofaccountabilityineachfunctionalunitwithintheorganisation,GroupInternalAuditandRiskManagementDepartment(GIARM)continuouslyreviewandprovideadvisorycommentsonproceduremanuals.Theultimateobjectiveistoenhancetheefficiencyandeffectivenessofkeycontrols,simplifyproceduresandstrengtheninternalsystemsthatsupportLabuanFSA’soverallgovernance.In2018,atotalofsixproceduremanualswerereviewed.
GIAalsoparticipatedasobserverforthetenderopeningprocessandassetsbidding,ensuringallactivitieswereconductedinafair,transparentandconsistentmanner.
EXTERNAL AUDITAsafederalstatutorybody,LabuanFSAsubmitsitsannualfinancialstatementstotheAuditorGeneral’sOffice(AGO)foraudit,pursuanttotheStatutoryBodies(AccountsandAnnualReports)Act1980(Act240).Keyissuesraisedbytheexternalauditorswereaddressedpromptlybythemanagement.
Management
LabuanFSAisheadedbytheDirectorGeneral(DG),whoisresponsiblefortheimplementationofLabuanFSA’sstrategyanddirection,affairsandday-to-dayoperations.Appropriatechecksandbalanceshavebeeninstitutedinallreportingrelationships,withoperationaldivisionsreportingdirectlytotheDG,andGIAhavingunrestrictedaccesstotheAuthorityviatheARMC.Whileprovidingleadershipanddirection,theDGensurestheorganisationalstructureisadequatelysegregatedbyfunctions,andthatthereisproperassignmentofauthorityandresponsibilities.ThisisaidedbytheDelegationofPowerinstrument.
Management Committee
TheManagementCommittee(MC)compriseseightseniormanagementmemberswhoassisttheDGindischarginghisresponsibilities.ItprovidesdirectiononLabuanFSA’s
overallbusinessstrategy,facilitatesthemanagementandsupervisionofitsoperations,andauthorisesthepurchaseofgoodsorservicesuptoRM250,000.In2018,MCconducted49meetings,chairedbytheDG,deliberatedavarietyofsignificantmattersincludingbusinessandprudentialpoliciesandcasesofconcernedinstitutions. Italsodiscussedonbudgetandexpenditure,functionalunits’policiesandprocedures,corporatesocialresponsibilityactivitiesandhumanresourcematters. TheMCalsomonitoredallprojectsundermanagement.
Other Management Committees
i. Risk Management Working Group
TheRiskManagementWorkingGroup(RMWG)overseesandreviewstheimplementationofriskmanagementelements,whichmayaffecttheachievementoftheobjectivesandstrategicgoalsofLabuanFSAanditssubsidiaries.TheRMWGcomprisedofeightdirectorsincludingtheDGofLabuanFSAwhoistheChairmanofRMWG.TheRMWGconvenedfourmeetingsin2018anddeliberatedamongothers,theappropriateriskmitigationonkeybusinessrisks,outputsfromriskassessmentandimplementationofactionplans,thedegreeofintegrationofriskmanagementtechniquesandthecontinuedapplicabilityoftherisktolerancesandescalationcriteria.
ii. Credit Risk and Investment Management Committee
TheCreditRiskandInvestmentManagementCommittee(CRIMCO)reviewsandrecommendstotheDGforapprovalorrejectionofanyapplicationreferredtothecommittee.CRIMCOconsistsofsixmembersfromvariousrelevantunits/departmentswithintheorganisation.ThecommitteedeliberatedonrecommendationsmadebytheLegalandBusinessManagementDepartmentwithregardtoapplications,exemptions,revocationsandregistrationspursuanttorelevantlawsrelatedtoLabuanIBFC.In2018,CRIMCOhaddeliberatedon205licenceapplicationsandoperationalmatters.
iii. Asset Management Committee
TheAssetManagementCommittee(AMC)chairedbytheSeniorDirector,overseesallaspectsofassetmanagementincludingprocurementanddisposalofassetsinthebestinterestofLabuanFSA.ItisempoweredtoauthorisethepurchaseofgoodsorservicesuptoRM100,000.In2018,AMCapproved28requisitionsanddiscussedonLabuanFSA’sassetsmanagement.
31ANNUAL REPORT 2018
CORPORATE GOVERNANCE
iv. Safety and Health Committee
TheSafetyandHealthCommittee(SHC)wasformedtoassistthemanagementindevelopingsafetyandhealthrulesandsafesystemsofwork.In2018,theSHCconductedaMentalHealthandStressManagementProgramme.Atotalofthreemeetingswereheldin2018.
v. Staff Welfare Fund Committee
ThecommitteereviewsandrecommendstotheDGforapprovalorrejectionofstaffloanapplications. In2018,thecommitteeapproved19applicationswithregardtostaffpersonalloans.
INTEGRITYGoodcorporateculturedemandshighintegrityatalllevelsoftheorganisation.ThegovernanceofLabuanFSAisbuiltonindividualvalueswhicharealignedwiththefollowingorganisationalsharedvalues:• Integrity,commitmentandprofessionalism• Openandhonestcommunication• Teamwork• Businessandstakeholderoriented• ContinuouslearningAspartofongoingeffortstomaintainhighstandardsofintegrityinourbusinessandactivities,LabuanFSAhascompliedtotheGovernment’srequirementtoappointanintegrityofficercertifiedbytheMalaysianAnti-CorruptionCommission.Ourintegrityofficerisresponsibleforimplementingintegrityprogrammestoensureintegrityandethicalpracticesareentrenchedinourcorporateculture.
ThefollowinginitiativesfurtherenhancedtheethicalworkenvironmentinLabuanFSA.
• ThesigningofCorporateIntegrityPledgereflectsLabuanFSA’scommitmenttofurtherenhancecorporategovernance,accountabilityandtransparencyaswellasadherencetoethicalstandardsinLabuanIBFC.
• IntegrityPactcomprisesadeclarationbybiddersnottoofferorgiveanyformofbribesasameanstoobtainacontractortofacilitatecertainprocessesinProcurement.BiddersandLabuanFSAemployeesarerequiredtosignapacttorefrainfromgettinginvolvedincorruptpractices.
• LabuanFSAadoptsa“NoGiftPolicy”thatrequiresemployeestodemonstratethehigheststandardsofethicsandconductinrelationshiptopotentialvendors,suppliersandcustomers.
•WhistleblowingPolicyisanavenueforallLabuanFSAemployeesoritssubsidiariesandmembersofthepublictodiscloseanymisconductandwrongdoingsinaccordancewiththeproceduresasprovidedunderthepolicy.Thewhistle-blowerwillbeaccordedwithprotectionofconfidentialityofidentityandwillalsobeprotectedagainstadverseanddetrimentalactionsfordisclosinganyimproperconductcommittedprovidedthatthedisclosureismadeingoodfaith.
CORPORATE INTEGRITY
PLEDGE
INTEGRITY PACT
NO GIFT POLICY
WHISTLE BLOWING
POLICY
Integrity Programmes
32 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
CORPORATE GOVERNANCE
ENTERPRISE RISK MANAGEMENTLabuanFSAhasembracedEnterpriseRiskManagement(ERM)asanintegratedcomponentofitsbusiness,operationanddecisionmakingprocess.BasedontheISO31000,RiskManagementPrinciplesandGuidelines,theERMFrameworkstandardisesLabuanFSA’sriskmanagementapproachaccrosstheGroup.ThekeycomponentsareillustratedinDiagram1.
• AssetsDeclarationrequiresallemployeestodeclaretheirincomes,assets,liabilitiesandfinancialinterestsinwriting.Thedeclarationisconfidentialandshallbeupdatedwhenthereisadditionalassetacquiredordisposed.
• LetterofUndertakingissignedbyallemployeesuponjoiningLabuanFSA.Theaimsistocreateawarenessamongstaffontheimportanceofcarryingouttheirdutiesprofessionallyandtoabidebythetermsandconditionsagreedon.
• PersonalDataProtectionActisestablishedtoensureinformation/datacollectedwillbeprocessedinaccordancewithPersonalDataProtectionActofMalaysia.
• Continuousawarenessprogrammeswereheldannuallytoensurestaffpractisegoodvaluesincarryingouteverydaytaskandavoidunethicalconductwhichwillhavenegativeimpactontheorganisation.
ASSETS DECLARATION
UNDERTAKING LETTER
PERSONAL DATA
PROTECTION ACT
AWARENESS PROGRAMMES
VISION STATEMENT/POLICYOBJECTIVE ENTITY LEVEL
Risk Assessment
Diagram 1:ERM Framework
Com
mun
icat
ion
and
Cons
ulta
tion
Mon
itorin
g an
d Re
view
Department
Unit
Subsidiaries
Strategic
Operation
Reporting
Compliance
Supervision
Establishing the context
Risk Identification
Risk Analysis
Risk Evaluation
Risk Treatment
Internal Environment
Risk Management Roles and Responsibilities
33ANNUAL REPORT 2018
CORPORATE GOVERNANCE
Diagram 2: RiskAssessmentProcesses
Diagram 3: ERMProcesses
TheERMframeworkfacilitatesLabuanFSAtosystematicallyconductriskassessment,whichincluderiskidentification,riskanalysisandriskevaluationacrossLabuanFSAanditssubsidiaries.ThekeyactivitiesoftheriskassessmentaresummarisedinDiagram2.
In2018,LabuanFSAcompletedafullcycleoftheERMprocesses,involvingtheparticipationoftheRMU,HeadofUnits/Departments,RiskManagementWorkingGroup(RMWG),AuditandRiskManagementCommittee(ARMC)andtheAuthority.ThekeyactionsundertheERMProcessesofLabuanFSAisillustratedinDiagram3.
• CorporateActionPlan.• Engagementsessionswiththeriskowners.
•Questionnairestoprompttheriskowners.
• Auditreportsfrominternalandexternalauditorsasreferral.
• Performancereportoftheorganisation.
• Feedbackfromkeystakeholdersoncurrentissues.
• Reviewofriskprofilesfromriskowners.• Engagementswiththeriskownersontheriskcontrolsandactionsplanstomitigaterisk.
• Prepareriskassessmentreport.• PresenttheERMriskassessmentreporttoRMWGforendorsement.
• PresenttheassessmentreportstotheAuthoritymembersforunderstandingandfurtherguidance.
• PresentthestatusofsignificantrisksofLabuanFSAanditssubsidiarieswithingivenriskappetiteforinformation.
• ConsolidateandanalysetheERMriskassessmentreport.• Identifykeyareasofriskconcernedandendorsetheremedialactiontakenortobetaken.
• PresenttheorganisationERMriskassessmentreporttoARMCmembersforendorsement.
• Identifyfurtherstepstomanageandmonitorrisks.
•Determinetheeffectivenessoftheriskcontrols.
•Measurestheimpactandlikelihoodoftheriskoccuranceinfactoringkeymitigants.
• Determinethelevelofrisktolerancethattheriskownersareableandwillingtomanage.
RISK IDENTIFICATION
UNIT/ DEPARTMENT
AUTHORITY MEMBERS
RISK MANAGEMENT
WORKING GROUP
AUDIT AND RISK
MANAGEMENT COMMITTEE
RISK ANALYSIS
RISK EVALUATION
34 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
CORPORATE GOVERNANCE
TheRMWGconvenedfourmeetingsin2018anddeliberatedonkeyriskmatterspertainingtotheobjectivesandstrategicgoalsaswellasoperationalrisksofLabuanFSAanditssubsidiaries.
TheERMframeworkisimplementedacrosstheGroup,encomprisingsubsidiariesnamelyLabuanIBFCIncorporatedSdn.Bhd.(LIBFCInc.)andPristineEraSdn.Bhd.(PESB).ThisallowedLabuanFSAtoachieve:
AlignmentofriskappetiteandstrategywithintheGroup
■ Convergenceofstrategicgoals,relatedobjectivesanddevelopmechanismstomanagerelatedrisks.
Prioritisationoftheriskmanagementactivity
■ EnsurethatresourcesandcapitalarefocusedonhigherpriorityriskswithintheGroup.
Identificationandmanagementofmultipleandcross-enterpriserisks
■ IntegratedresponsestothemultiplerisksaffectingdifferententitiesoftheGroup;and
Moreeffectivecapitaldeployment
■ EnhanceassessmentofGroupcapitalneedsandfacilitatescapitalallocation.
Atotalof12engagementsessionswereconductedinvolvingLabuanFSA,PESBandLIBFCInc.in2018andseveralmeasureshavebeenimplementedincluding:
• Boardandseniormanagementoversight;
• Enhancedinternalprocesses;
• Well-definedresponsibilitiesforallemployees;and
• Systematicrecordmanagement.
TheERMprocessesofthesubsidiariesaresimilartothatoftheGroupasdepictedinDiagram3.However,theresultsoftheirriskassessmentsarediscussedattheirrespectiveboardmeetingspriorpresentingattheARMCmeetingforendorsement.
LabuanFSAembracesERMasitemphasizedatop-downholisticapproachtoeffectiveriskmanagementfortheentireorganisation.ThegoalofERMistoincreasethelikelihoodthatanorganisationwillachieveitsobjectivesbymanagingriskswithinthestakeholders’appetiteforrisk.UsingERMasaframework,LabuanFSAisabletoreviewriskstoinitiativesasoutlinedintheCorporateActionPlan.Thesecomprisefourmaingroup,namelystrategic,operational,systemandfinancial,followedbyninesub-risk,asshowninDiagram4below.
Diagram 4: RiskGrouping
STRATEGIC OPERATIONAL SYSTEM FINANCIAL
• Regulatory
• Business
• Stakeholder
• Human
• Compliance
• Information
• Security
• ICT • Funding
35ANNUAL REPORT 2018
CORPORATE GOVERNANCE
Significant Risks
LabuanFSAmonitorsandminimisessignificantrisksinaproactivemanner.ThesignificantrisksandLabuanFSA’sresponseinordertomanageandminimisethemareasfollows:
1. Regulatory Risk
LabuanFSAkeepsabreastontheregulatorydevelopmentsandensuresproperplanninginformulatingviableandeffectivemeasurestoalignwithdomesticandinternationalregulatoryrequirements.In2018,ourprudentialandbusinesspolicieswereregularlyreviewedandalignedwithinternationalstandardstoensurethebusinessenvironmentofLabuanIBFCremainedrobustandattractiveascomparedwithothers.
2. Business Risk
LabuanFSAcontinuestomonitortheriskofcurrentdevelopmentsonactivitiesofLabuanIBFCarisingfromchangesontheregulations,taxpoliciesandtherequirementswhichcouldhaveanadverseimpactonstrategicdirections,implementationofdecisionandresponsivenesstoeconomyandindustry.
RISK
RISK
RESPONSE
RESPONSE
Regulatory
Business
Conductadequaterisk-basedsupervisoryactivitiesonintermediarieswithgreaterfocusonmarketconduct,AMLandeffectiveoff-sitemonitoring.
Regularengagementwiththerelevantauthoritiesandagenciestoensureadherencewiththerequiredinternationalstandards,lawsandregulations.
Reviewtheexistingguidelines,lawsandregulationsaswellasenhancetheexistingframeworktobeonparwithinternationalrequirements.
IssuanceofbusinessguidancetofacilitateandpromotegreatermarketawarenessonLabuanofferings.
Revisedthebusinessrequirementstospurgreaterbusinessgrowthandcomplywithinternationaltaxstandards.
Issuanceoftherevisedandnewchecklistsandformsforlicenceandoperationalapplications,tofacilitateandprovideefficientdeliveryservicestoexistingandpotentialplayers.
REGULATORYRISK
BUSINESS RISK
FINANCIAL RISK
Diagram 5: Significant Risks
36 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
CORPORATE GOVERNANCE
Key Activities in 2018
Keyactivitiespertainingtoriskmanagementundertakenfortheyearwereasfollows:
Risk Profiles Review
In2018,RMUconductedacomprehensivereviewoftheriskprofilestoidentifytheimplicationarisingfromanychangesinstrategy.ThereviewinvolvedengagementwithHeadofUnits/DepartmentsofLabuanFSAandthesubsidiaries.TheresultsofthereviewwerereportedtotheRMWGandARMCforapproval.
Review the Procedure Manuals of Labuan FSA Group
TheunitreviewedproceduremanualsofLabuanFSAanditssubsidiariesinlinewiththeISO9001:2008QualityManagementSystem–Requirementstoensuretheoperationsarebeingmanagedmoreeffectively,whichresultedinanimprovementintheoverallperformanceoftheorgansation.
Awareness Initiatives
RMUissuedthreebilingualriskbulletinswithvarioustopicsonriskmanagementforinternalcirculation.
3. Financial Risk
FinancialriskreferstotheriskofLabuanFSAexperiencingreductioninrevenueandcashflowandimpairingitscapabilitiestoimplementkeystrategies.In2018,GroupFinanceUnitcontinuouslymonitoredandplannedthebudgetaccordingly.TheimplementationofprudentspendingmeasuresandrationalisationoftheoperationsofLabuanFSAwithitssubsidiariescontributedtowardsimprovingcashflowmanagement.
RISK
Financial
ReducedLabuanFSAanditssubsidiaries’operatingcostinlinewiththeSMARTspendingandeffectivecostmanagementstrategies.
RationalisedtheoperationsofLabuanFSAanditssubsidiaries,LIBFCInc.andPESB.
OptimisedthefixedassetsofLabuanFSAtogenerateadditionalrevenue.
RESPONSE
Diagram 6: KeyActivities
RISK PROFILES REVIEW
BUSINESS CONTINUITY
PLAN
AWARENESS INITIATIVES
REVIEW THE PROCEDURE
MANUALS OF LABUAN FSA
GROUP
37ANNUAL REPORT 2018
CORPORATE GOVERNANCE
Business Continuity Plan
TheBusinessContinuityPlan(BCP)frameworkofLabuanFSAisakeycomponentoftheorganisation’sgovernancetoensureresiliencyandenableaneffectiveresponsewhenfacedwithadverseeventssuchasnaturaldisasters,technologicalfailures,humanerrorsordamagetoitsofficepremises.TheobjectivesoftheBCPisdepictedinDiagram7.
LabuanFSAconductedtwoBCPsimulationexercisesinFebruaryandSeptemberof2018,involving32employeesundertheEmergencyManagementTeam(EMT),andsupportedbytheSafetyandHealthCommitteetoassesstherobustnessandfeasibilityoftheBCPwhileensuringthepreparednessoftheEMTinemergencysituation.Asaresultoftheexercise,LabuanFSAhasfurtherstrengthenedtheBCPframeworkinfiveareas,asshowninDiagram8.
EnsurebusinessoperationsofLabuanFSAcontinuesintheeventofdisaster,beitinternalorexternal
EnsurethesurvivalofLabuanFSAbyestablishingaculturethatwillidentifyandmanagethoserisksthatcouldbedetrimentaltoLabuanFSA
Developandtestofawell-structuredandcoherentplanwhichwillenableLabuanFSAtorecoverquickly
MinimisefinanciallossestoLabuanFSA
EnhancedITsystem.
ImprovedcommunicationbetweenEMT,BCPmembers,employeesandotherstakeholders.
Enhancedinformationsharingtoassistinmanagingcrisis,decisionmakingandrecovery.
Improveddecisionmakingflow.
Facilitiesprovidedattherelevantlocationsaremorefacilitativeforbusinesscontinuity.
1
2
3
4Diagram 7: ObjectivesofBCP
Diagram 8: OutcomesofBCPSimulation
38 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
CORPORATE GOVERNANCE
TheBCPwillbeactivateddependingontheimpactofthedisasterthathasbeenidentifiedundertheorganisation’slevelofemergencyasshowninDiagram9.
Diagram 9: LabuanFSA’sEmergencyLevel
Minorincidents(4to8hours)
LEVEL 2Emergency
(8to24hours)
LEVEL 3MajorCatastrophe
(Morethan24hours)
LEVEL 4MinorIncidents
(Lessthan4hours)
LEVEL 1
39ANNUAL REPORT 2018
For further information,please go to: www.labuanibfc.com
LABUAN IBFC INDUSTRY PERFORMANCE
40 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
LABUAN IBFC INDUSTRY PERFORMANCE
LABUANIBFC’SSTRONGFOUNDATIONHASENABLEDTHEBUSINESSCONTINUETOGROWANDEXPANDIN2018.THISWASMADEPOSSIBLEBYAFACILITATIVEBUSINESSREGIMEINAWELL-REGULATEDENVIRONMENTANDSUPPORTEDBYAPOOLOFPROFESSIONALSERVICEPROVIDERSINTHECENTRE.OVERALL,THELABUANIBFCINDUSTRYRECORDEDANOTHERYEAROFSTRONGPERFORMANCEWITHBROAD-BASEDGROWTHACROSSKEYBUSINESSSECTORSIN2018.
HIGHLIGHTS OF KEY BUSINESS SECTORS PERFORMANCE IN 2018
COMPANIES
IntandemwiththegrowingpaceandpotentialofAsia’seconomies,Labuancompaniesregisteredanincreaseof12.5%.innewincorporations.
INSURANCE
TheimprovingeconomicconditionshavebrightenedLabuaninsuranceindustryanditgarneredadoubledigitgrowthof19.1%intotalgrosspremiumunderwritten.
BANKING
Despitechallenginginternational bankinglandscape,Labuanbanksstoodresilientandmaintainedtheirbusinessmomemtum withlendingactivitiesrecordedhistoricalhigh.
COMMODITY TRADING
RecoveryofoilpricesspurtheperformanceofLabuancommoditytradingbusinessandthishassignificantlyincreasedtheprofitabilityofLITCsby63.2%.
INNOVATIVE FINANCIAL SERVICES
Therapidembrace offinancialinnovationbodeswellforthegrowingFinTech-relatedbusinessinLabuanIBFCusingareadysuiteofstructuresandsolutions.
41ANNUAL REPORT 2018
LABUAN IBFC INDUSTRY PERFORMANCE
COMPANIESTheyearsawadouble-digitgrowthof12.5%innewcompanyincorporations,bringingthetotalnumberofcompaniesto15,260(2017:14,201).60.1%(2017:61%)ofthetotalcompaniesoriginatedfromAsiaandthePacificregion.TherewasanincreaseinestablishmentofcompaniesfromtheFarEastregionat12.8%from9.8%.RepresentationfromEuropestoodat12.1%(2017:12.6%)andfollowedbyAmerica,andtheMiddleEastandAfrica,accountedfor11.2%(2017:12.1%)and3.8%(2017:4.5%),respectively.
Operatingcompaniesincreasedto6,031withahikeof4.2%fromthepreviousyear.3,390weretradingcompanieswhile2,024wereestablishedsolelyforholdingofinvestments.
MIDDLE EAST AND AFRICA AMERICA EUROPE FAR EAST ASIA AND THE PACIFIC
3.8% 11.2% 12.1% 12.8% 60.1%
617
2 ,024 Non-Trading
3 , 390 Trading
TOTAL COMPANIES15,260OPERATINGCOMPANIES6,031
790
2016 2017 2018 2016 2017 2018 2016 2017 2018
941 1 , 059 13 , 260 14 ,20 1 15 , 260
NEW INCORPORATIONS
5 ,76 1 5 ,789 6 ,03 1
OPERATING COMPANIESTOTAL COMPANIES
Trading and Non-Trading
42 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
TRUST COMPANIES TheincreaseincompanyincorporationhasboostedthegrowthofthetrustandcorporateservicessectorinLabuanIBFC.Theseserviceprovidersofferawiderangeofservicestoentitiesacrossthemarketaswellastotheinternationalinvestors.
In2018,sixnewtrustcompanieswereapproved,comprisingtwofull-fledgedtrust,threemanagedtrustandoneprivatetrustcompany.Thisbringsthetotalnumberoftrustcompaniesto58(2017:52),anincreaseof11.5%fromlastyear.
Thetotalincomeofthetrustcompaniesincreasedby6.5%toUSD26.2milion(2017:USD24.6million)andthisledtoa5.1%increaseinthesector’sprofitabilitytoUSD8.4million(2017:USD8million).Theincomewasmainlyderivedfromsecretarial,trusteeship,accountingandadministrativeactivities.
PROFITABILITY(In USD Million)
2016 2017 2018
Profit Before Tax Number of Trust CompaniesTotal Income
4752
23 .5 9 . 1 24 . 6 8 26 .2 8 .4
58
LABUAN IBFC INDUSTRY PERFORMANCE
43ANNUAL REPORT 2018
INSURANCE LabuanIBFC’sinsurancemarkethasbeenbuoyedbytheregion’sgrowthmomentum.Duringtheyear,22insuranceandinsurance-relatedentitieswereapproved,comprisingsixcaptives,13brokers,tworeinsurersandoneunderwritingmanager.Duringtheyear,sixlicenseeshavesurrenderedtheirlicencesbecauseofbusinessdecisionsorinabilitytocontinuetheirbusinessongoingconcernbasis.Furthermore,threelicenseeshavehadtheirlicencesrevokedduetonon-complianceswiththerequirementoftheLabuanlaws.ThisbringsthetotalnumberofapprovedLabuaninsuranceandinsurance-relatedentitiesto216(2017:203).
209 209 204 203216
NUMBER OF LABUAN INSURANCE ANDINSURANCE-RELATED ENTITIES
2014 2015 201820172016
Captive ManagerInsurance / ReinsuranceBroker Total
72
22
43
66
79
24
40
66
78
23
40
68
74
23
39
68
80
23
48
65
TOTAL ASSETS(In USD Billion)
4 , 16 4 , 1 4,24
201820172016
LABUAN IBFC INDUSTRY PERFORMANCE
44 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
LABUAN IBFC INDUSTRY PERFORMANCE
Totalassetsincreasedby3.3%toUSD4.2billion(2017:USD4.1billion),mainlyattributedtotheincreaseinamountduefromceding/relatedcompanies.Fixeddepositsandmoneymarketremainedthelargestportionoftotalassetscomponents,representing22.4%orUSD948.5million(2017:USD958.9million).
TheLabuaninsurancesectorgarneredasignificantdouble-digitgrowthof19.1%initstotalgrosspremiumstoUSD1.7billion(2017:USD1.4billion).TheincreasewasmainlyduetothegrowthingrosspremiumswrittenonfireinsuranceoutsideofMalaysiabytheLabuangeneral(re)insurers.Non-residentbusinesscontinuedtodominatethereinsuranceactivitywithahighershareof64.7%(2017:60.9%)andfiresectorremainedthebiggestcontributorof39.8%orUSD664.9million(2017:USD514.9million)ofthetotalgrosspremiums.
TOTALGROSS PREMIUMS(In USD Billion)
1 . 5 1 . 3 1 . 4 1 . 4 1 .7
2014 2015 2016 2017 2018
39.8 FIRE
7.4 MARINE
10.2 ENGINEERING
8.1 MOTOR
34.5 OTHER CLASSES
36.7 FIRE
8.3 MARINE
11.8 ENGINEERING
10.1 MOTOR
33.1 OTHER CLASSES
DISTRIBUTION OF GROSS PREMIUMS(In %)
2018 2017
PREMIUMS BY ORIGIN
MALAYSIANBUSINESS
35.3%USD 589.5 MIL
FOREIGNBUSINESS
64.7%USD 1,081.1 MIL
2018
MALAYSIANBUSINESS
39.1%USD 548.8 MIL
FOREIGNBUSINESS
60.9%USD 853.8 MIL
2017
45ANNUAL REPORT 2018
LABUAN IBFC INDUSTRY PERFORMANCE
Theoverallnetretentionratiooftheindustrydecreasedto60.9%withthereductionofretentioninthemotor,marineandothersectors.Nonetheless,motorsectorrecordedthehighesttotalnetretentionat73.3%.Theindustryearnedpremiumincomeincreasedby14%toUSD982.8million(2017:USD862.4million),hence,increaseinunderwritingmarginby4.3%toUSD95.8million(2017:USD91.9million).Thecommissionandmanagementexpensesrecordedanincreaseof19.5%and16.9%toUSD206.3millionandUSD59million,respectively.Netclaimsincurredrecordedanincreaseof13.6%toUSD621.7million,consequently,theprofitbeforetaxdecreasedby22.1%toUSD132.3million(2017:USD169.9million).
NET RETENTIONRATIO(In %)
Malaysian Others Total
2014 2015 2016 2017 2018
65 .7
77 72 .7
81 . 5
68 .664 .9
53 . 554 .858 .7
55 .454 .5
64 . 1
7 1 . 9
63 .2
60 . 9
UNDERWRITING MARGIN(In USD Million)
201820172016
Management Expenses
970.1
34 1 . 5
196 . 6
64 . 9
367 . 1
862.4
982.8
Net Claims IncurredUnderwriting Margin
Earned PremiumNet Commision
547 .4
172 .7
50 .59 1 . 9
62 1 .7
206 . 3
5995 .8
PROFITABILITY(In USD Million)
2014
328.6
2015
253.9
2016
387.3
2017
169.9
2018
132.3
46 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
LABUAN IBFC INDUSTRY PERFORMANCE
Captivebusinesscontinuedtogrowwithmorethanhalfofthecaptiveinsurancepremiumscomingfrominternationalmarkets.Thetotalgrosspremiumsforcaptiveinsurancebusinessincreasedby11%toUSD400.5million(2017:USD360.9million).EngineeringsectorandotherclassesofbusinesscontinuedtobethemainsectorsthatcontributedtotheincreaseintotalgrosspremiumsofthecaptiveswithUSD98.7million(2017:USD101.5million)andUSD246.1million(2017:USD212.2million),respectively.
9.7 FIRE 3.7 MARINE 24.6 ENGINEERING 0.5 MOTOR 61.4 OTHER CLASSES
2018
7.1 FIRE 5.4 MARINE 28.1 ENGINEERING 0.6 MOTOR 58.8 OTHER CLASSES
2017
6.4 FIRE 4.3 MARINE 37.7 ENGINEERING 0.6 MOTOR 51.1 OTHER CLASSES
2016
OthersMalaysian
243
135.3
232.3
142.3
161.4
187.2
130
230.9
130.7
269.8
Total
TOTAL GROSS PREMIUMS(In USD Million)
201820172014 2015 2016
378.3 374.6348.6 360.9
400.5
47ANNUAL REPORT 2018
184
830
149
924
336
1,675
553
2,136
356
2,386
13
NUMBER OFINVESTMENT-LINKED POLICIES
2014 2015 2016 2017 2018
Policies in ForceNew Policies
NEW INVESTMENT-LINKED POLICIES(In USD Million)
SUM INSURED SINGLE PREMIUMS
15 .2 8.5 13.2 8
20182017
Life BusinessGeneral Business
PREMIUMS PLACEMENT (In USD Million)
2014 2015 201820172016
127.2
937.5 888 818.5
604.4
881.7
767.8810.3
120.3
738.4
80.2
514.7
89.6
769.6
112
Total Life BusinessGeneral Business
BROKERAGE FEES EARNED(In USD Million)
2014 2015 201820172016
11 .4
66.251 .8 49 46.5 47.9
40.354.8
11 .6
40.1
9
37.4
9.1
37.8
10.1
Total
LABUAN IBFC INDUSTRY PERFORMANCE
Forlifeinsurancebusiness,atotalof356newinvestment-linkedpolicieswereissuedin2018withatotalofUSD8million(2017:USD13.2million)worthofpremiums.Thetotalnumberofpoliciesinforceincreasedby11.7%to2,386.
ThetotalpremiumplacementbytheLabuaninsurancebrokersincreasedby45.9%toUSD881.7million(2017:USD604.4million).Thegeneralinsurancebusinesscontributed87%ofthetotalpremiumplacement,mainlyderivedfromtheinternationalmarket.ThebrokeragefeesearnedbytheLabuaninsurancebrokersimprovedslightlyby3%toUSD47.9million(2017:USD46.5million).
48 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
LABUAN IBFC INDUSTRY PERFORMANCE
Thetotalgrosscontributionfor(re)takafulsectoralsoimprovedby4.4%toUSD95.9million(2017:USD91.9million)withmotorsectorremainedthehighestcontributorof52.2%orUSD50.1million.
OthersMalaysian
TOTAL GROSS CONTRIBUTION (In USD Million)
2014 2015 201820172016
(15 .6)
53.7
10.7
44.6
12
42.7
38.1
55.3 54.7
20
71.8
22.6
73.3
13
Total
91 .9 95.9
2014 2015 2016 2017 2018
DISTRIBUTION OF GROSS CONTRIBUTION(In USD Million)
FIRE MARINE OTHER CLASSESMOTORENGINEERING
1 3 . 1
2 1 . 4 3 1 .7
(4 . 1 ) ( 1 . 5 ) (4 . 4 )
1 . 8 2 .7
24 30 .5
3 . 2 5 .7
3 .2 4 . 3
3 . 6 9 . 1
5 8 .41 . 8 2 .8
35 20 .8 50 . 1
25 .2 42 .5
49ANNUAL REPORT 2018
LABUAN IBFC INDUSTRY PERFORMANCE
BANKING Thebankingsectorcontinuedtogrowwiththeentranceofonecommercialbankandoneinvestmentbank,bringingthetotalnumberofbanksto55in2018.Thebanksmaintainedtheirbusinessmomentumwithasteadylevelofearnings,positiveliquidityandqualityassets.
Totalassetsimprovedby8.4%toUSD55billion(2017:USD50.7billion)duetohigherfinancing,particularlyinthemanufacturingsector.Intermsofcapital,theshareholders’fundsofLabuanbanksincreasedtoUSD3.5billion.BorrowingfromheadofficesandfinancialinstitutionscontinuedtobetheprimaryfundingsourceforLabuanbanks,comprising71.4%orUSD39.2billion(2017:USD36.6billion).
TOTAL ASSETS(In USD Bilion)
2017
50.7
2018
55
2014
44.3
2015
47.4
2016
51
27 .8 33 .2 8 . 3 9 . 5
LOANS AND DEPOSITS(In USD Billion)
LOANS DEPOSITS
2017 20172018 2018
8 .9
18 . 9
13 . 4
19 .8
4 . 9 5 . 5
43 .4
ResidentNon-Resident
ResidentNon-Resident
50 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
LABUAN IBFC INDUSTRY PERFORMANCE
Totalloansincreasedby19.1%toUSD33.2billion(2017:USD27.8billion)withnon-residentcustomerscontributing59.7%orUSD19.8billion(2017:68%,USD18.9billion)oftheloansportfolio.Thetotalcustomerdepositsincreasedby14.6%toUSD9.5billion.DepositsfromresidentsamountedtoUSD5.5billionor58%.
Financingextendedtomanufacturingsectorshowedagrowthof142.2%orUSD3.9billionduringtheyear.Thenewlendingsweremainlytooilandgasrelatedandelectronicbusinesses.
Thebankingsector’sprofitbeforetaxregisteredagrowthof10.1%toUSD500.3millionin2018(2017:USD454.6million).
TheIslamicbankingbusinessalsocontinuedtogrowinfinancingandcustomerdeposits,withtotalassetsupby2.4%toUSD3.2billion,andtotalfinancingupby8.4%toUSD2.7billionandnon-residentcustomersaccountedfor70.4%ofthetotalfinancing.ThetotalIslamicdepositsroseby10%toUSD212.7million.
FINANCING BY SECTOR(In %)
2017 20187.18.99.9
10.59.94.2
16.917.2
1 .214.2
4.89.3
20.212.98.53.712.314.52.211 .6
AGRICULTURE AND FORESTRYMINING
MANUFACTURINGUTILITIES
PROPERTYTRADING
TRANSPORT AND COMMUNICATIONSFINANCIAL SERVICES
OTHER SERVICESMISCELLANEOUS
1.6
2.21.9
3.1 3.2
TOTAL ISLAMIC ASSETS(In USD Billion)
2014 2015 2016 2017 2018
777 .4
2 ,537 ,6 2 ,749 .7
812 .83 . 6
193 .4
17 .8
2 12 .7
1 ,760 .2 1 , 936 . 9
189 .8 194 . 9
FINANCING AND DEPOSITS(In USD Million)
FINANCING DEPOSITS2017 2018 2017 2018
ResidentNon-Resident
ResidentNon-Resident
51ANNUAL REPORT 2018
LABUAN IBFC INDUSTRY PERFORMANCE
37 43 50 57 48
TOTAL REVENUE(In USD Billion)
2014 2015 2016 2017 2018
Number of LITCs Revenue
30
19.617.1
23.8
33.4
LOCAL SPENDING(In USD Million)
109 .4 12 .4 23 . 9 35 . 9144 . 1 177
2016 2017 2018
Local Expenditure Tax Revenue Contribution(Estimated)Employment
537
652698
INTERNATIONAL COMMODITY TRADING Therecoveryofglobaloilpricesin2018hasspurtheperformanceoftheinternational commoditytradingbusiness.ThisledtoasignificantimprovementintheLabuanInternationalCommodityTradingCompanies(LITC)’sprofitabilityby63.2%toUSD1.2billion(2017:USD755.4million).
ThetotalrevenueofLITCincreasedby40.4%toUSD33.4billionwhiletotalexpenditureincurreddecreasedby7.9%toUSD307.6million.Morethanhalf,57.6%orUSD177million(2017:USD144.1million)outofthetotalexpenditurewasspentinMalaysia.
52 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
LABUAN IBFC INDUSTRY PERFORMANCE
AviationOil & GasOthers
TOTAL COMPANIES ANDLEASED ASSETS BY SECTOR(In USD Billion)
THE ORIGIN OFLEASING COMPANIES(In %)
2014 2015 201820172016
Asia and the Pacific
Europe
America
Far East
Middle East and Africa
2018
11.8
70.414.8
2.20.8Number of Leasing Companies
32.3 37.8 34.1 32.6 33
12 13.1
1 .2 0.9 0.8 0.6 0.4
15.8 15.6 20.4
357373 383 380 371
LEASING Theleasingcompaniesrationalisedtheirbusinessoperationsin2018tocomplywiththeglobalchangeineconomicsubstancerequirements.Althoughtheconsequentialeffectoftherationalisationhasresultedinlowernumberofleasingcompanies,thecumulativevalueofassetsleasedexpandedby10.2%toUSD53.8billion(2017:USD48.8billion)withoilandgasandaviationsectorscontributing61.3%and37.9%(2017:66.9%and31.9%),respectively.
70.4%(2017:68.2%)oftheLabuanleasingcompaniesoriginatedfromAsiaandthePacificregion.Theremaining29.6%werefromEurope(14.8%)(2017:15.5%),America(11.8%)(2017:13.2%),FarEast(2.2%)(2017:2.4%)andMiddleEastandAfrica(0.8%)(2017:0.8%).
53ANNUAL REPORT 2018
LABUAN IBFC INDUSTRY PERFORMANCE
24 29 35
MONEY BROKERS
ASIA &THE PACIFIC
68.6%
EUROPE
22.9%AMERICA
2.9%
MIDDLE EAST &AFRICA
5.7%
2016 2017 2018
0 1 3
CREDIT TOKEN
0 1 2
PAYMENT SYSTEM2016 2017 2018 2016 2017 2018
INNOVATIVE FINANCIAL SERVICES In2018,manyFintechstart-upsestablishedinnovativefinancialservices-relatedbusinessesinLabuanIBFC;offeringareadysuiteofstructuresandsolutionsintheareasofmoneybrokingandcapitalmarket.
Moneybrokingbusinesscontinuedtogrowwithincreasinginteresttoprovideaplatformfortradingofdigitalassetsduetotheestablishedlegalframework.In2018,ninemoneybrokerswereapprovedofwhichtwowerelicensedtoprovidedigitalcurrenciesaspartoftheirmoneybrokingoperations,bringingthetotalnumberofapprovedmoneybrokersto35.
68.6%ofLabuanmoneybrokersoriginatedfromAsiaandthePacificregion,mainlyfromJapan,HongKongandMalaysia.
TheprovisionsundertheLabuanIBFClawsandguidelineswithregardtocredittokenbusinessandpaymentsystemoperatorhavefurtherfacilitatedthesettingupofinnovativefinancialservicesrelatedactivitiessuchasdistributedledgertechnologyanddigitalcurrencies.
Duringtheyear,threelicenceswereapprovedforthepurposeofissuingassetbacktokensandonepaymentsystemhasalsobeenapprovedwithinthecredittokenbusinesstosupporttheclearingandsettlementoffunds.Inaddition,onesecuritiestokenexchangewasapprovedtoprovideplatformforfiat/cryptocurrencyconversion,listingandtradingofsecuritiestokencustodialservicesofdigitalassets.
54 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
22 29 38
NEW REGISTRATION
FOUNDATIONS
144 15 1 162
ACTIVE FOUNDATIONS
1 1 Private Charitable 18 Public Charitable
1 33 Non-Charitable
ASIA ANDTHE PACIFIC
5.6%
6.8%
8.6%
4.9%
MIDDLE EAST ANDAFRICAAMERICA
74.1%
FAR EASTEUROPE
2016 2017 2018
2016 2017 2018
WEALTH MANAGEMENT Thewealthmanagementsectorremainedstrongwithcontinuedgrowthinglobalassetsandrisingnumberofhighnet-worthindividuals(HNWIs)populationinAsia.ThepositiveoutlookhascontinuedtopresentopportunitiesforLabuanIBFC’swealthmanagementsolutionintheformofLabuantrustsandfoundationsforestateplanning,investmentholdingandmanagementofprivatewealth.
In2018,38newfoundationswereregistered,anincreaseof31%,bringingthetotalnumberofactivefoundationsto162(2017:151).Ofthetotal,29(2017:32)werecharitablefoundationsand133(2017:119)non-charitable.74.1%(2017:72.8%)ofLabuanfoundationsoriginatedfromAsiaandthePacificregion.
CAPITAL MARKET Therewasanincreasingdemandofmoneybrokersforthepastfiveyearstoactasintermediariestoprovidefundmanagementservices,advisoryservicesandfundadministration.TheseintermediarieswerealsomovingtowardsusingFintechsolutionsintheformofelectronictradingplatformtoprovidevalueaddedservicestotheirclientstotradeinforeignexchange.
In2018,fivefundmanagementcompaniesweregrantedapproval,bringingthetotalnumberoffundmanagementcompaniesto19whilethenumberofsecuritieslicenseesremainedat10.
Tennewprivatefundswereregisteredandtwoceasedtheiroperations,bringingthetotalnumberofprivatefundsto62. Thetotalcumulativefundsizeincreasedby9.2%toUSD13.1billion.MostofthesefundswereusedasinvestmentvehiclesforinfrastructureprojectsintheASEANregion.
EXCHANGEIn2018,LabuanInternationalFinancialExchange(LFX)recordedonenewlistingwithamarketcapitalisationofUSD320million,andtwoexistinginstrumentsweredelisteduponreachingmaturity,bringingthetotalnumberofactivelistingsto30.
Thetotalmarketcapitalisationdeclinedby1%toUSD24.3billion.Ofthetotal,31.7%orUSD7.7billionweresukuklistings.
LABUAN IBFC INDUSTRY PERFORMANCE
55ANNUAL REPORT 2018
For further information,please go to: www.labuanibfc.com
POLICY DEVELOPMENT
56 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
POLICY DEVELOPMENT
PRUDENTIAL POLICIES DEVELOPMENT
I. Strengthening the Financial Resilience of Key Sectors
2018marksasamilestoneyearthatsawmoderationinintensityfornewprudentialregulations.Thishoweverisnotareflectionoflesseremphasisonsafetyandsoundnessbutrathertheaccumulationofprudentialupscalingeffortssince2013toharmonisewiththerequirementsoftheinternationalstandardsandbestpractices.Majoreffortsweremadetocompletethefinalprocessinmodernisingthefinancialregulations,forboththeLabuaninsuranceandbankingsectors.
• DevelopmentsoftheInsuranceCapitalAdequacyFramework (ICAF)
For2018,ICAFinitiativestocompletethecapitalregulationsfortheinsurancesectorwerecontinued.Theyearsawfulloperationalisationoftheinsuranceliabilitiesvaluationrequirementstoensurethatthesearevaluedinarealisticandmarket-consistentmanner.LabuanFSA’seffortsfor2018wasthentoconstructasetofmeaningfulrisk-basedcapital(RBC)requirementswhichwereexposedtotheindustryviaaconsultativepaper.Inessence,theproposedRBCaims:
(i) toensurethatplayersmaintainsufficientregulatorycapitallevelthatcommensuratewiththeirriskprofileregardlessofsizeandbusinessoperations;
(ii) tocalibratetheextentofcapitalbufferrequiredbyindividualinsurervis-à-visthenature,typeandextentofboththebusinessesunderwrittenaswellastheirportfolioofinvestmentheld;
(iii) toprovidethefoundationforcapitalmanagementforaninsurertouseinmanagingandstrategisingitsbusiness;and
(iv) tohaveapracticalsetofcapitalrulesthatissuitedtoLabuan’spredominantlyinternationalinsurancebusinesswhichfocusesonnon-lifesector.
Basedontheindustry’scommentsandrecommendationsreceived,LabuanFSAwillundertakeaquantitativeimpactstudyin2019priortofinalisingtheRBCframework.
• ReviewofCaptiveSolvencyRequirements
IntandemwiththeICAFinitiatives,LabuanFSAhadalsoundertakenareviewofthesolvencyrequirementsforLabuancaptiveinsurancebusiness.Theintentionwastoidentifyothercapitalrequirementswhichwouldbettersuitthecaptivesotherthantheexistingsolvencymarginoftheircommercialinsurercounterparts.Furthermore,thebusinessesandoperationsofacaptiveisfarsmallerthananormalinsurerduetounderwritingofownorgroup-relatedrisks.Withlesserregulatoryconcerns,proportionatecapitalregulationasevidencedinotherprominentinternationalcaptivecentresaroundtheworldcanalsobeemulatedinLabuan.Theindustry’sviewshavebeensoughtonthemodifiedsolvencyapproachbeforetheAuthorityfirmsupthesector’snewcapitalregulations.
• GreaterGuidanceonImplementingtheBankingCapital Adequacy Framework (BCAF)
TheyearalsoshowsasignificantshiftfortheLabuanbanksastheytransitionintoBaselIIandIIIcapitalruleswhenBCAFtookeffecton1July2018.To
57ANNUAL REPORT 2018
POLICY DEVELOPMENT
complementtherequirementsofBCAFGuidelines,alistofFrequentlyAskedQuestionswithregulatoryadvicewereissuedtoguideandaddressvariousimplementationqueriesraisedbytheindustry.
II. Promoting Effective Corporate Governance
Inadditiontopromulgatingfinancialsoundness,LabuanFSAcontinuedtodriveforgoodcorporategovernanceandcultureduringtheyearwithregardtothekeymarketsinLabuanIBFC.
• EnhancingtheGovernancePracticesforLabuanBanks and Labuan Insurers
TakingcognisantthateffectivecorporategovernanceiscriticaltotheproperfunctioningoftheLabuanbanksand(re)insurers,areviewwasmadeonthepreviousgovernancerequirementsforthetwofinancialsectorstoensureconsistencyaswellastakingintoaccountthebenchmarks’requirementsandbestpractices.Thisculminatedintoarevisedgovernanceframeworkissuedtotheindustrywhichincludedthefollowingnewtenets:
(i) enhancementstotheroleandresponsibilitiesoftheboardandseniormanagementincludingestablishmentofboardcommittees;
(ii) guidanceoninstitutingasoundriskculturetodrivegoodriskmanagementwhichincludedensuringeffectiveinternalcontrolfunctionsaswellascyberriskmanagement;and
(iii) promotionofbusinesstransparencyandintegrityoftheLabuanbanksand(re)insurers.
• RefinementstotheExternalAuditorsFramework
FollowingtheissuanceoftheGuidelinesonExternalAuditorsengagedbyLabuanFinancialInstitutions,
aclarificationnotewasissuedtoprovidefurtherguidanceontheimplementationoftherequirementsfortheLabuanbanksand(re)insurers.Thisincludesclarificationmadeontheflexibilityaccordedtotheannualappointmentoftheexternalauditoraswell as forbranchentities.
BUSINESS POLICIES DEVELOPMENT
I. Innovation-Led IBFC via Innovative Financial Services Solutions
Withtheincreasingtechnologicalwavessweepingtheglobalfinanciallandscape,FinTechhasincreasinglybecomeaprominentfeatureintheAsianmarkets,includingLabuan.TheCentrerecognisedthevastbusinessopportunitiesofferedbythisdevelopmentandhasbeen,overthelasttwoyears,beenembracingtheseinnovations.ExclusivelybrandedasInnovativeFinancialServices(IFS)intheLabuanmarket,LabuanFSAhadmadeitpubliclyknownovertheyearofitsactiveadvocatingforFinTechpropositionswhichcancaterfordemandsfromthevicinityAsianmarkets:
• AmarketcircularissuedinJune2018announcedofLabuanFSA’sstanceinpromotingIFSaspartoftheCentre’smarketinnovationsandthenationalagendafordigitaleconomy.ItalsoemphasisesforIFSproviderstobemindfulofregulatoryfundamentalssuchastherequirementsofMalaysia’santi-moneylaunderingandcounterfinancingofterrorism,marketconduct,cyberriskmanagementandsoundgovernance.
58 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
POLICY DEVELOPMENT
• PressreleaseontheLabuanIBFC’spromotionofIFSwhichcanbereadilypairedwiththeplethoraoffinancialsolutionsthatarealreadyreadilybeingofferedbytheCentre.ThepublicwasalsoinformedofalistofFrequentlyAskedQuestionswhichhasbeenprovidedtobetterguideprospectsinterestedinstartingupIFSinLabuanIBFC.
II. PromotingGrowthandExpansionoftheLabuanInsurance Market
Inlinewithpastyear’sstrategicintenttoexpandthissector,in2018,LabuanFSAcontinuedtofacilitatethegrowthpaceoftheLabuaninsuranceindustrybygrantinggreaterliberalisationandprovidingmoreguidancetothemarket.
• LiberalisingtheLabuanLifeInsuranceBusiness
RevisionsweremadetoGuidelinesonPermissibleLifeInsuranceBusinesswithHighNet-WorthMalaysianIndividualstoeffectderegulationofoperatingcostcontrollimitsonLabuanlifeinsurerswhichhavetie-upswithMalaysianfinancialinstitutionsasdistributionchannels.TherevisionentailedremovaloflimitsonthecommissionspayabletoMalaysianbankinginstitutionswhichparticipateinbancassurancearrangementswithLabuanlifeinsurersaswellastoMalaysianagentsinrespectofmarketingLabuaninvestment-linkedproducts.
• GreaterClarityonLabuanCaptivesInsuranceBusiness
Aclarificationnotewasissuedtothemarketontheinsurablerisksofthe(re)insuredthatLabuancaptivescanunderwrite.Itwasexplainedthattheserisksshouldbelinkedbacktothoseofacaptive’sowngroup(i.e.apurecaptive);orofpartiesrelatedtothecaptive(e.g.associationcaptive).Thisbusinessscopingwouldalsoapplyforrentalcaptivevehiclessuchasprotectivecellcompanies.
• ExplainingtheRoleofLabuanInsuranceandUnderwriting Managers
ToinstilgreaterawarenessontheLabuaninsuranceserviceproviders,aguidancenotewasissuedtooutlinetherangeofprofessionalservicesthatcanbeofferedbyLabuaninsuranceandunderwritingmanagers(LabuanManagers)totheirprincipal(re)insurers.ThisenhancesthebusinessvisibilityoftherolesthatareplayedbyLabuanManagersasoneofthekeyintermediarieswithintheLabuaninsuranceecosystem.
III. Continuous Enhancement to Labuan Business Regulations
AspartoftheAuthority’scontinuouseffortstoensurerelevancyoftheCentre’sbusinessregulationsvis-à-visinternationalstandards,businessrequirementscontinuedtobereviewedandrevisedaccordingly. In2018,thisentailedarevisionoftheLabuanleasingbusinessregulationstoincorporaterecommendationsoftheOrganisationforEconomicCo-OperationandDevelopment(OECD)undertheForumonHarmfulTaxPractices(FHTP).
For2018,thesameeffortscontinuedwiththereviewoftherequirementsforLabuaninternationaltradingcompaniesundertheGlobalIncentivesforTradingProgramme.Amongothers,restrictionsonresidentdealingsandinringgitcurrencywereremoved;whilstthelicenceconditionsrelatingtominimumannualturnoverandtypesofprofessionaltraderswererevisedto reflectbettermarketpracticality.
59ANNUAL REPORT 2018
POLICY DEVELOPMENT
TAX POLICY DEVELOPMENTI. ConformingtoInternationalTaxStandardsand
Requirements
• ForumonHarmfulTaxPracticesbytheOrganisation for Economic Co-operation and Development (OECD)
Severalinitiativeshavebeenundertakenin2018inlinewithOECD’sForumofHarmfulTaxPractices(FHTP).Thekeyactionsincluderemovalof‘ring-fencing’elementsinLabuanlawswhichrestrictLabuanentitiesfromdealingwithresidentsandinringgitaswellasintroductionofsubstantialactivitiesrequirementsinLabuanIBFC.Thesubstanceregulationwasgazettedon31December2018andtookeffecton1January2019.WiththeamendmentsmadetoLabuanlegislations,FHTPhasconcludedthatLabuanIBFCisincompliancewiththeFHTP’sstandardsandnotharmful.
• GlobalForumonTaxTransparencyandExchangeof Information
InOctober2018,MalaysiaincludingLabuanhasundergoneanassessmentviaapeerreviewprocessfortheimplementationoftherequirementsforexchangeofinformationbetweenjurisdictionsfortaxpurposes.Theassessmentwhichcomprisedtenelementscoveredthefollowingbroadcategories:
(i) Availabilityofownership,accountingandbankinginformation;
(ii) Accesstoinformationbythecompetentauthority;and
(iii) Exchangeofinformation.
ThepreliminaryassessmentconcludedthattheratingforMalaysia(includingLabuan)as‘LargelyCompliant’.
II. LabuanNewTaxFramework
IntandemwiththedevelopmentsininternationaltaxstandardsandaspartofthecontinuouseffortstomodernisetheCentre’staxarchitecture,theLabuantaxregulationswerereviewed.TheinitiativeistoensurethecontinuedbusinesscompetitivenesswithasustainablefiscalmodelthatcanbetterintegrateLabuanIBFC’sgrowthtotheIsland’slocaleconomy.ThesalientfeaturesofthenewLabuantaxframeworkinclude:
(i) AbolishmentofRM20,000taxelectionbyLabuanentities;
(ii) Labuantradingactivitieswouldbetaxedat3%ofthenetauditedprofits;and
(iii) LabuanentitiesarerequiredtohavesubstantialactivitiesintheIslandinordertoavailtotheLabuantaxincentives.
Throughthenewtaxrequirements,itisexpectedthatLabuanentitieswouldnotonlyprovidegreaterfiscalcontributiontothenationbutalsocreatemoreemploymentopportunitiesintheIslandthroughtheirsubstantialactivities.
FACILITATING LABUAN IBFC’S ISLAMIC FINANCE INITIATIVESWiththeobjectiveofpromotingLabuanIBFCasamarketthatoffersalternativeIslamicfinancemarket,LabuanFSAdevelopedbusinessguidestoinculcategreaterawarenessonLabuanIslamiccapitalandtheIslamicwealthmanagementsolutions:
• GuidanceonSukukWakalaBiAl-Istithmar
AmarketguidanceonSukukWakalaBiAl-IstithmarwasissuedtocomplementtheexistingrequirementsontheissuanceandsubscriptionofLabuansukuk.ThebusinessguidehighlightedtheconduciveandflexiblerequirementsforraisingfundsthroughsukukissuanceunderkeyShariahprinciplesinLabuanIBFC.ThebusinessguidesalsohighlightedbenefitsofsukukissuanceoutoftheCentrewhichwouldbeusefulforprospectiveissuersandsubscribers.
• ProposedGuidanceonIslamicTrusts
LabuanFSAhadtabledtheproposedGuidanceNoteonIslamicTrustattoitsShariahSupervisoryCouncilinOctober2018andisexpectedtobeissuedinthesecondquarterof2019.ThebusinessguideisintendedtoelevategreatermarketunderstandingbydepictingsalientfeaturesofthediverseShariah-basedproductsthatcanbestructuredviaLabuanIBFC.Theend-gameistostrengthenfurtherthegrowthofIslamicwealthmanagementforthosewhichprefershariah-compliancevehiclesasanalternativetotheCentre’sconventionalsolutions.
60 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
POLICY DEVELOPMENT
Financial Stability Committee
In2018,theFinancialStabilityCommittee(FSC)deliberatedpertinentdevelopmentsaspartofitsadvisoryrolesinrespectofsafetyandsoundnessoftheLabuanIBFClandscape.TheFSCmeetingsduringtheyeartouchedonthevariousprudentialregulationsandsupervisoryissuesofconcernedinstitutions.Inaddition,theCommitteealsodiscussedthepertinentdevelopmentsduringtheyear:
• theassessmentmadebytheOECD’sFHTPinwhichLabuanwasrequiredtoaddressthering-fencingelementswithinitslegislationandguidelinesandtoinstituteamoretransparentsetofsubstantialactivityrequirementsforLabuanentities.Subsequently,theratingoftheCentrewasrevisedto‘NotHarmful’.
• thePhaseIIIPeerReviewAssessmentonMalaysia(includingLabuan)inrelationtoconformitytotheOECD’srequirementsonexchangeofinformation. TheFSCwasinformedthatLabuanwascitedastohaveimproveditslevelofcompliancefromthePhaseIIexercisein2013.OveralltheratingforMalaysiawasmaintainedat‘LargelyCompliant’withimprovementsinseveralareasofassessment.
• theBudget2019whichwasannouncedbytheFinanceMinisteron2November2018,outlinedseveralfiscalchangestotheLabuantaxframework.ThisincludesmodernisationofthetaxpayablerequirementsaswellasintroductionofexplicitsubstantialactivityrequirementsforidentifiedLabuanentities.TheCommitteetooknoteofLabuanFSA’splanstofacilitatetheimplementationofthenewrequirementsfortheLabuanplayers.
• LabuanFSA’sassessmentsonthenewfinancialreportingstandardsoftheInternationalAccountingStandardsBoardwhichhaveorexpectedtohaveeffectsonLabuanbanking,insuranceandleasingbusinesses;
• theongoingworksundertakenonbyLabuanFSA on theSectoralRiskAssessmentsonLabuanaspartoftheinitiativesofAML/CFT.
• sharingontheSecuritiesCommissionMalaysia’srisk-basedsupervisoryapproachandmethodologyforAML/CFT.
International Advisory Panel
TheInternationalAdvisoryPanel(IAP)ofLabuanFSAmetinAugust2018.Keyhighlightsofthemeetingincludemembers’inputonopportunitiesintheinternationalbusinesslandscape:
• discussionsondevelopmentsaffectingIBFCs,particular,thewavesofchangearisingfromChina’sBeltandRoadInitiative(BRI).Takingcuefromthis,LabuanwouldopportuniseontheexpectedrealeconomicgrowthinthecountrieswithinthevicinityoftheBRIpathwhichcantranslateintodemandsforfinancingthatcanbeofferedbytheCentre.
• withtheincreasingregionaldemandforMalaysia’sIslamicfinance,opportunitiesexistforLabuan’sShariah-compliantsolutionstobepromotedalongwiththeofferingsofMalaysiaInternationalIslamicFinancetoattractmoreUS-denominatedIslamicbusinesses.
• newbusinessprospectsforLabuanwerealsodeliberatedbasedoncurrentdemandsintheregion:
■ GrowingdemandsforalternativerisktransfersintheformofInsurance-LinkedSecuritieswhichwasstillconsideredasfairlymodestinthewesternreinsurancemarkets.
■ IncreasingFinTechwavesinIBFCs,particularlyforBlockchain-basedofferings.
■ NewinsuranceandbankinglicencesthatcanbeofferedbytheCentreasproliferationofexistinglicenceofferings.LabuanManagingGeneralAgentsasspecialisedunderwriterstoserveforeigninsurerswhichareoff-Labuan;andLabuanPrivateBanksthatcanenrichtheCentre’swealthmanagementecosystemweremootedaspossiblenewbusinesspropositions.
61ANNUAL REPORT 2018
POLICY DEVELOPMENT
Shariah Supervisory Committee
In2018,theShariahSupervisoryCommittee(SSC)metanddeliberated:
• theproposedGuidanceNoteonIslamicTrustinLabuanIBFCintendedasessentialguidanceforprospectstogaininsightsonthefundamentalsofLabuanIslamictrustsandhowsuchShariah-compliantsolutionscanbeusedforwealthmanagementandsuccessionplanning;and
• theIslamicfinancemarketdevelopmentinitiativesplannedbyLabuanFSAincludingpromotionalactivitiesbyLBFCInc.
ANTI-MONEY LAUNDERING COMBATING THE FINANCING OF TERRORISM (AML/CFT)2018reflects an eventfulaccomplishmentforalllawenforcementagenciesincludingLabuanFSAincompletingthecrucialactionplansensembleintheNationalStrategicActionPlan(NSAP).ThisultimatelyaddressesFATFRecommendationshighlightedintheMalaysiaMutualEvaluationReport(MER2015).
NotableachievementswerederivedfromendorsementoftheoutcomeoftheNationalRiskAssessment(NRA)bytheNationalCoordinationCommittee(NCC)inMay2018.Theendorsementrelatestoidentifyingnationalwidethreatcrimesandvulnerabilitiesofmoneylaundering(ML)andterroristfinancing(TF)riskonfinancialinstitutions,non-profitorganisations,designatednon-financialbodiesandprofessionalsectors.
Inaddition,substantiallegislativechangesonTheStrategicTradeAct2010(STA2010)toimplementcountermeasuresonproliferationfinancing weresuccessfullyenactedandimplementedinApril2018.TheSTA2010amendmentsinJune2017includedthelistingofBankNegaraMalaysia,SecuritiesCommissionMalaysiaandLabuanFSAasauthorisedofficerstoenforcetheSTA2010onthe
ReportingInstitutions(RIs).Inaddition,theStrategicTrade(UnitedNationsSecurityCouncilResolutions)Regulations2010(STARegulations),whichsetsoutthefreezingobligationandotherrelevantsanctionsmeasuresondesignatedindividualsandentitieswasamendedinApril2018toextendtheobligationsandprohibitionsundertheSTARegulationstoallpersons,includingforeignindividualsandentitiesinMalaysia.
Furtherpolicyreviewwasconductedtocomplementthisimplementationacrosstheauthorisedlawenforcementagencies,ledbyMinistryofInternationalTradeIndustryinajointcollaborationwithsixagenciesandministries,includingLabuanFSA,RoyalMalaysianCustomsDepartmentandMinistryofForeignAffairs.TheDirectiveonImplementationofTargetedFinancialSanctions(TFS)relatingtoproliferationfinancing(PF)waslaterissuedinApril2018tofacilitatetheRIs’understandingandcompliancewiththeTFS-PFobligationsandrestrictionsundertheSTA2010,STARegulations,STAOrderandtherelevantUNSCRs.TheDirectiveislegallybindingonallRIs.
TheamendedSTA2010,STARegulationsandDirectiveshadfurtherimprovedtheoverallresultsofMalaysiatocompliantstatus,thuspositionedMalaysiaamongjurisdictionswiththehighesttechnicalratingsforMutualEvaluationResults.
Risk Assessment Results
TheNRA2017isthethirdcentralisedassessmentonML/TFriskforMalaysia,apartfromothertargetedandsector-basedassessments,whichLabuanFSAhasjointlyparticipatedwithotherlawenforcementagencies.TheNRA2017consistsofthreeseparateassessments:
i. ThreatRiskAssessment(TRA)–seriouscrimesthatposeMLthreatsandprobabilityoftheseseriouscrimestogenerateillegalfundsanddisguisetheirillegalorigin.
ii. TerrorismandTFRiskAssessment(T&TF)assessedunderDomesticReviewonNon-ProfitOrganisations(DR-NPO)–terrorism,theprobabilityofraising,movingandusingfundstosupportterrorists’activities.
62 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
POLICY DEVELOPMENT
iii. SectoralRiskAssessment(SRA)–vulnerabilitiesoffinancialandnon-financialsectorstoriskofMLandTF.
LabuanFSAhasprovidedtherelevantdatapertainingtotheLabuanIBFC’sbusinessactivitiesaswellasregulatoryandenforcementactionsundertakenbyLabuanFSAasthecompetentregulatorforthejurisdiction.Apartfromthat,asmemberoftheNCC,LabuanFSAhasalsoinvolvedinmoderationduringtheNCCHigh-Levelmeetings,NCCWorkingGroupmeetingsandothersub-committeemeetingsundertheNCC.
Basedontheanalysisandmethodologiesemployed,theresultoftheNRAconcludedthattherewerefivetypesofcrimesthatposehighmoneylaunderingriskthreattothecountry.Thosecrimeswere:
• Fraud(whichcomprisesfraud-relatedoffences,forexamplecheatingoffencesunderthePenalCode,illegalinvestmentsschemesoffencesundertheFinancialServicesAct,CapitalMarketandServicesAct,DirectSalesandAnti-PyramidSchemeAct,andCompaniesAct),
• Drugstrafficking,
• Corruptionandbribery,
• Smugglingoffences(includingevasionofcustomsandexciseduties),and
• Taxcrimes.
TheNRAisanimportanttooltofacilitateunderstandingofmoneylaunderingandterroristfinancingrisksfacingthecountry.UnderstandingofrisksisimportantasitsetthefoundationuponwhichourAML/CFTregimeisimplemented.ForanAML/CFTregimetobeeffective,ithastotargettheresourcesandAML/CFTinitiativestowardsareasthatposethegreatestrisks.
Measures of Risk Mitigation
Appropriatenationalstrategiesandactionplansweredevelopedprogressivelytomitigatevulnerabilitiesin
crimesorsectorsidentifiedashigherrisk,andtoaddressanyidentifiedgaps.Atthesametime,thecommunicationstrategieshavebeeninitiatedincludingthepublicationofNRAreport.
Curbing Global Imminent Risk in Proliferation Financing (PF)
Theproliferationofnuclear,chemicalandbiologicalweaponsofmassdestructions(WMDs)andtheirintermediaryvehicleshasbeenapersistentthreattoglobalpeaceandsecurity,whichhascalledforinternationalcommunityaliketoformulatepoliciesandactiontopreventstateandnon-stateactorsfromattainingWMDs.
Since2012,instrengtheningdomesticcounterproliferationfinance(CPF)regimes,theUNhascreatedmechanismsforevaluatingtheprogressofmemberstatesinmeetingtheirrelevantobligations,includingissuanceofsanctionstocountriesthatposesthreatstointernationalpeaceandsecurityintheformofsanctionscommittees,expertgroupsorUNSecretariatmonitoring.WiththerecentissuanceofSecurityCouncilResolutions(UNSCR)2231whichformsabindingobligationstoimplementrestrictionsonallUNmemberstatestoaddressthreatsonWMDproliferationandnon-stateactors,aswellassanctionsregimeonNorthKorea.Intandemtotheseglobalinitiatives,FATFhadinJune2017,furtherupdatedtheFATFRecommendationsoncombatingmoneylaunderingthefinancingofterrorismandproliferationtargetingonharnessingenhancedcountermeasuresrequiredbyitsmembers.
Atthedomesticlevel,MalaysiaasstatememberandFATFmemberpremisedonclosinggapshighlightedbyFATFinMalaysiaMER2015Report,theNCChadundertakencomprehensivemeasuresdesignedtocombatproliferationfinancingincludinglegislationamendmentsandempowermentofrelevantlawenforcementagenciestotakeactionagainstaproliferation-linkedtransaction,individualorentity.
InclosinganylegalgapsontheCPFmeasures,andaddressingthewidenedsanctionsregimearisingfromUNSCRsimposedonDPRKsinceMarch2016,LabuanFSA
63ANNUAL REPORT 2018
POLICY DEVELOPMENT
asoneofthesupervisoryauthoritybodiesinMalaysia,hasjointlyconductedtheinitialassessmentandmadecognisantapproachtoimposenewobligationsthroughvariousinitiativesbelow:
I. EnactmentofNewLegislations-TheStrategicTradeAct2010(STA2010)andTheStrategicTrade(UnitedNationsSecurityCouncilResolutions)Regulations2010(STARegulations)
• NewregulatorypowertoincludeanablesufficientenforcementpowersAuthorisedOfficertoenforceSTA2010includingLabuanFSA,BNMandSC.
• Freezingobligationandotherrelevantsanctionsmeasuresondesignatedindividualsandentitiesextendedtoallpersons,includingforeignindividualsandentitiesinMalaysia.
II. DevelopmentofPolicyChangestoReportingInstitutions
• DirectiveonImplementationofTargetedFinancialSanctionsrelatingtoProliferationFinancing(TFS-PF)(Peraturan-PeraturanPerdaganganStrategik(PengkompaunanKesalahan)2018
• StrategicTrade(CompoundingofOffences)Regulations2018(GarisPanduanPelaksanaanPengkompaunanKesalahanDiBawahAktaPerdaganganStrategik2010[DraftGuidelines]
• DraftSOPStrategicTrade(CompoundingofOffences)Regulations2018
Strategic Trade
(Compounding of Offences) Regulations
2018
• DeterminationoftheMaximumamount
• Offenceseligibleforcompoundablepenalty
• Offencesissubjecttowheninvestigationhascompleted;Repeatedoffenceisbasedonanyoffences
• Powertooffercompound
• Otheradministrativepenalty
• IssuanceofCompoundForm
• Compound30daysPeriodDeadline
64 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
POLICY DEVELOPMENT
Opportunities for Improvement Way Forward
InadditiontotheongoingmeasuresinpreventingandreducingthevulnerabilitiesofthefinancialsystemtoMLandTFactivities,morefocuswillbeemphasizedonLabuanmoneybrokers,trustcompaniesandfundmanagerswhichwereassessedashavingsubstantialnetriskexposuretoMLandTFrisks.
Specifickeymeasureswhichcallforfurtherimprovementidentified,including:
LEGAL FRAMEWORK
AWARENESS AND
TRAINING
POLICY ANDIMPLEMENTARYFRAMEWORK
RESOURCES AND
STRUCTURE
• ExemptionlowML/TFriskRIs,sectorsand/orfinancialproducts
• EnhancedspecificAML/CFTsupervisoryframeworkonhigherrisksectors/RIs
• LeverageonprudentialsupervisorsforAML/CFTinspection
• Increasesupervisoryactivitiesonhighrisksectors
• Reviewofsectoral AML/CFTpolicies
• EstablishSRAdatabaseforon-goingmonitoring
• EnhancequalityofAML/CFTrisk-basedsupervision
• IncreaseofAML/CFTCertificationforsupervision
• IncreasecoordinationandcollaborationofsupervisorsandLEAsforearlyidentificationandalertsofhigherrisks
• Strategicandtargetedawarenessoncomplianceissuesfordectorswithweakcontrols.
On-going monitoring on fit and proper assessment of key persons and reappointments.
Enhancement of AML/CFT compliance programme – board and senior management oversight and training.
Increase number of supervisory activities and enforcement actions.
Enhancement in number and quality of STR through outreach and engagement programmes on selected sectors.
65ANNUAL REPORT 2018
For further information,please go to: www.labuanibfc.com
SUPERVISORY ACTIVITIES
66 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
SUPERVISORY ACTIVITIES
SUPERVISION AND MONITORING
THELABUANFSA’SSUPERVISORYPHILOSOPHYHASCONTINUEDTOEMPHASISEONOBTAININGATHOROUGHUNDERSTANDINGOFTHEINDIVIDUALLABUANFINANCIALINSTITUTION(LFI)INORDERTOENSURETHESAFETYANDSOUNDNESSOFTHEFINANCIALSECTORS.ASSUCH,THISSUPERVISORYPHILOSOPHYENSURESTHATTHERISKSOFMONEYLAUNDERING(ML),TERRORISMFINANCING(TF)ANDPROLIFERATIONFINANCING(PF)AREADEQUATELYIDENTIFIED,MITIGATEDANDCONTROLLEDIN LABUANIBFC.
DuetoheightenedglobalattentiononAML/CFT,thededicatedsupervisionunitonAML/CFThascoveredbothoffsiteandonsiteexaminationin2018.Theleveragingconceptofsupervision,i.e.,anintegrationofAML/CFTsupervisionintothebroaderframeworkofprudentialandbusinessconductsupervisionhadcertainlyaddressedtheissueofmanpowerlimitationandimprovedtheeffectivenessinmonitoringandmanagingMLandTFrisks.
Theresultofthe2017SectoralRiskAssessment(SRA)onML/TF/PFforLabuanfinancialsectorswasamajorandimportantfactorinplanningthesupervisorystrategy.In2018,greatersupervisoryactivitiesandfocus,bothonsiteandsupervisoryengagementweregiventomoney-brokingbusinessandtrustcompanysectors,whichwereidentifiedashigherrisksectorsunderthe2017SRA.Duringtheyear,arefinedrisk-basedsupervisoryframeworkonAML/CFTwasestablishedandapprovedbytheManagementCommitteeofLabuanFSAtoguideexaminersinassessinganLFI’sinherentrisk,qualityofriskmanagement,andcontrolfunctionsrelatedtoAML/CFT.
Overall,LabuanFSAconducted45onsiteexaminationsand92supervisoryengagementswiththeboardandseniormanagementoftheidentifiedinstitutionsin2018ascomparedto49onsiteexaminationsand114supervisoryengagementsin2017.However,moretimewasspenttoassessandverifytheconduct,implementationandeffectivenessoftheriskmanagementandcontrolfunctionembeddedbytheLFIstoidentify,monitorandcontroltheinherentriskofMLandTF,particularlyinrelationtorecord-keeping,customerduediligence,beneficialownership,profilingandongoing
monitoring.Also,duringtheyear,besidesthetwosupervisorycollegesattended,fullcooperationwasalsogiventoahomesupervisorforagroup-widesupervisionandexaminationofasistercompanyoperatinginLabuanIBFC.
ToensureholisticcoverageinmonitoringtheML/TFrisksinLabuanIBFC,thesupervisoryscopewasalsowidenedduringtheyeartoincluderegulatorycomplianceaspectsofothernon-financialsectorssuchasleasing,foundation,factoringandLITC.Preliminaryassessmentandprofilingonthesesectorswereconductedandwillbecontinuedin2019tofacilitateunderstandingandidentifyingtheriskofMLandTFonthesesectors.
Arisk-basedsupervisoryframeworkcontinuedtobeappliedinsupervisingtheLFIsinlinewiththesupervisorypracticesofotherinternationaljurisdictions.EachFIissubjecttocontinuousmonitoringbytherespectiverelationshipmanager,withgreaterfocusgiventohigherriskinstitutions.Inadditiontoonsiteandsupervisoryengagementactivitiesthatwerecarriedout,therespectiverelationshipmanageralsoreviewedandupdatedthecompositeriskratingforbanksandinsurancecompanies.RiskprofilesandnewdevelopmentofeachFIfortrustcompanies,capitalmarketentities,moneybrokersandotherintermediarieswerealsocreatedthroughthereviewofstatisticalreturns,auditedfinancialstatements,compliance,internalauditandactuarialreports.ThisistoensurethesafetyandsoundnessofLFIsandtheircompliancetoregulatoryrequirements.
Overall,majorityofthebanks,(re)insurancecompaniesandothersectorswereratedaslowerrisks,whileonlyafewwereratedashigherrisks(AboveAverageandHigh),mainlyduetoconcernsoncapitalandearningsperformance.Basedonthesupervisoryactivitiesconductedduringtheyear,commonissuesidentifiedincludecapitalinadequacies,non-compliancetosinglecounterpartyexposurelimitandGuidelinesonKualaLumpurMarketingOffice,complianceandinternalauditfunctions,inadequaciesofrecordskeptinLabuan,inadequaciesincustomerduediligence,operatingfromandoutsourcingoffunctionswithoutLabuanFSA’sapproval.Nevertheless,theseFIsdonotposeanythreattothestabilityofthefinancialsysteminLabuanIBFC.
67ANNUAL REPORT 2018
SUPERVISORY ACTIVITIES
Thesupervisoryandenforcementactionstakendependontheseverityoftheissuesidentified.Fornormalsupervisoryissues,supervisoryletterswereissuedtotherespectiveLFIsforrectificationactions.Formoreseriousissues,includingcapitaldeficiency,restrictionofbusinesswouldbeimposedontheLFI.ThepublishingofnamesonLabuanFSAwebsiteofLFIswhoselicenceswererestricted,hasresultedinimprovedindustrybehaviourtowardsregulatorycompliance.ProposalswerealsomadetotheProsecutionUnittoimposeadministrativepenaltiesorrevocationoflicencefornon-compliance.
Aboutsixinvestmentbanks,two(re)insurancesectors,twoinsurancebrokers,twomoneybrokers,onetrustcompanyandonesecuritylicenseewerecategorisedasconcernedinstitutionsmainlyduetocapitaldeficiencyandnon-compliancewithregulatoryrequirements.Ofthese,sixentitieswereonrestrictionofbusinessandtheirnameswerepublishedonLabuanFSAwebsitewhileoneisstillunderinvestigation,fourweregivennoticesofintentionforrevocationandthreeunderclosemonitoring.TheseFIswerecloselymonitoredbytherespectiverelationshipmanagerandtheirstatuswasfrequentlyreportedtoLabuanFSA’smanagementcommitteeandtheFinancialStabilityCommittee.
Overtime,lawsandguidelinesaswellasrequirementsforAML/CFThavebecomemorestringent;thishasdemandedforachangeofcultureandanenhanceddisciplineofcomplianceamongtheoperationalmanagementstaff,seniormanagementandboardoftheLFIs.Furthermore,theinternationalstandardsettingbodieshaveinstitutedrequirementscoveringgovernance,supervisionandprudentialrequirementsthatmustbeinstitutedbyallcentresiftheydonotwishtobelabelledasnon-compliantorblacklistedandbeimposedwithsanctions.Inthisregard,aseriesofengagementswereheldonperiodicbasis,withtheLabuanindustryassociations,todiscussareasofconcernsandcommonissuesidentifiedbythesupervisoryactivities.Furthermore,thesessionsarealsousedtodisseminatetheresultoftheSRAandsharethelatestdevelopmentandexpectationsonAML/CFTrequirementstoraiseknowledgeamongstLFIstoovercometheML/TFrisks.Inaddition,specificindustrybriefingsandworkshopswerealsoheldwithidentifiedsectorsandentitiestoenhanceknowledgeonML/TFrisksandsuspicioustransactionreporting.ThebriefingswereaimedtoinculcateacultureofcomplianceandfurtherenhanceunderstandingandobligationfortheimplementationofriskmanagementandcontrolfunctionsrelatedtoMLandTF.
Inenhancingskillsaswellasensuringthatsupervisorsarekeptabreastwithdevelopments,relevanttrainingswereprovidedtosupervisorsinthecriticalareas,includingonAML/CFT, risk-basedsupervisionsaswellasfinancialtechnology.Movingforward,theuseofinformationtechnologywillassistthesupervisoryprocessfurther.ImprovementsinsystematicdatacollectionviaenhancementoftheLabuanFSA’sStatisticalManagementSystemwillprovidegreatergranularityofindustrydata.Thiswillimprovethesupervisoryassessmentsintermsofin-depthanalysisoftheLFIsandmonitoringofcompliancewithregulatoryrequirements.
AML/CFTmatterswillcontinuetobeafocusinoursupervisoryplanfortheyear2019.Apartfromthe42onsiteexaminationsand70supervisoryengagementsplannedfor2019,LabuanFSAwillalsocontinuetoprovideadvisoryservicesandbriefingstotheidentifiedsectorsinensuringtheadoptionandimplementationofriskmanagementandcontrolfunctionsineffectivelymanaging ML,TFandPFinLabuanIBFC.
INVESTIGATION AND ENFORCEMENT
EQUIPPEDWITHMANDATEFROMTHELABUANFINANCIALSERVICESAUTHORITYACT1996(LFSAA1996),LABUANFSACONTINUEDTOUNDERTAKEINVESTIGATION,ENFORCEMENTANDPROSECUTIONAGAINSTTHELABUANINSTITUTIONSFORNON-COMPLIANCEOFTHEVARIOUSLABUANLEGISLATIONANDALSOBREACHESOFOTHERLAWSGOVERNINGLABUANIBFC.THESEINCLUDETHEANTI-MONEYLAUNDERING,ANTI-TERRORISMFINANCING,ANDPROCEEDSOFUNLAWFULACTIVITIESACT2001(AMLATFAPUAA)WITHTHEAIMOFENSURINGTHESAFETYANDSTABILITYOFLABUANIBFC.
Investigation
In2018,therewasanincreaseofmorethan80%ofinvestigationcasesinitiatedagainstLabuanentitiesascomparedtopreviousyear.MostofthecaseswerefoundwithbreachesrelatedtopromotingfinancialservicesbusinesswithoutapprovalofLabuanFSA,deposittakingactivityfromthepublicbyunlicensedLabuanentitiesandforgeryofLabuanFSA’sdocuments.Thesignificantincreasewasattributedpredominantlyfrompubliccomplaints,anomaliesdetectedfromdeskmonitoringandassessmentsreportbyLabuanFSA’sinternalparties.
68 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
SUPERVISORY ACTIVITIES
Enforcement and Prosecution
Intheareaofenforcementandprosecution,LabuanFSAcontinueditssurveillanceandenforcementfocusoncompliancewiththerequirementundertheAML/CFTregimeduringtheyear.Theeffectivenessoftheenforcementactionstakenhasresultedintheincreaseofdetectionofnon-compliancecasesby55.7%for2018.Intotal,LabuanFSAhasundertakenatotalof369enforcementcases,revocationof32licencesandsuspensionoftwoentitiesfornumerousnon-compliancewiththeregulations,compriseofvariousindustriesincludingbankingentities,insuranceentities,trustcompanies,leasingbusinessactivitiesandnormalLabuancompanies.Inaddition,LabuanFSAhasundertakenfourcriminalprosecutionsduringtheyear.
Furthertotheabove,LabuanFSAalsocommittedtoprotectinginvestors’interestandcontinuedtocautionthepublicagainstanyriskofmoneylaunderingand/orfinancingofterrorismactivities.WehaveissuedblacklistedentitiesunderLabuanFSAInvestors‘AlertListandpublisheditonthewebsite.ThisreflectstherobustenforcementmeasurestakentofurtherstrengthentheAuthority’scommitmentinimprovingthecomplianceindexandsoundnessoftheLabuanIBFC.
Collaborations and Sharing of Information
Duringtheyear,LabuanFSAcontinuedtocollaborateandcooperatewithvariouslawenforcementagenciesdomesticallyandinternationallytoensurerobustandcomprehensiveintelligencegatheringandsharingofinformationwithcounterparties.EnforcementeffortswerefurtherstrengthenedthroughactivecollaborationandengagementwithotherfinancialregulatorsandlawenforcementagenciessuchastheAttorneyGeneral’sChambers,BankNegaraMalaysia,SecuritiesCommissionMalaysia,InlandRevenueBoardandRoyalMalaysianPolice.Thishastranslatedtoanincreaseof51%intermsnumbersofcollaborationsandsharingofinformationwithotherregulatorsinvolvingover633entities.Theon-goingallianceistoensureastrongsurveillancemonitoringmechanismbetweenthevariousagenciestomaintainpublicconfidenceinLabuanIBFC.
Further,LabuanFSAbeingamemberoftheNationalCoordinationCommitteetoCounterMoneyLaunderingalsoreceivedcooperationfromthemembersinexecutingitsmandatedrolestosafeguardLabuanIBFCfromanypotentialriskstomoneylaundering,financingofterrorismactivitiesaswellasotherfinancialcrimes.
69ANNUAL REPORT 2018
For further information,please go to: www.labuanibfc.com
FINANCIAL STATEMENT
74 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
STATEMENT BY THE MEMBERS OF THE LABUAN FINANCIAL SERVICES AUTHORITY
We,OH CHONG PENG and DANIAL MAH ABDULLAH, beingtwooftheMembersofLABUAN FINANCIAL SERVICES AUTHORITY,statethat,intheopinionoftheMembersoftheAuthority,theaccompanyingfinancialstatementsaredrawnupinaccordancewithMalaysianFinancialReportingStandardsandInternationalFinancialReportingStandardssoastogiveatrueandfairviewofthefinancialpositionofLABUAN FINANCIAL SERVICES AUTHORITYasat31December2018andtheirfinancialperformanceandcashflowsfortheyearthenendedonthatdate.
OnbehalfoftheMembersoftheAuthority.
OH CHONG PENGChairman
DANIAL MAH ABDULLAHDirector-General
75ANNUAL REPORT 2018
STATUTORY DECLARATION BY THE OFFICER PRIMARILY RESPONSIBLE FOR THE FINANCIAL MANAGEMENT OF LABUAN FINANCIAL SERVICES AUTHORITY
I,WAN AHMAD SANUSI MAHMOOD(681203-03-5307),beingtheofficerprimarilyresponsibleforthefinancialmanagementofLABUAN FINANCIAL SERVICES AUTHORITY,dosolemnlyandsincerelydeclarethattheaccompanyingfinancialstatementsare,inmyopinion,correctandImakethissolemndeclarationconscientiouslybelievingthesametobetrue,andbyvirtueoftheprovisionsoftheStatutoryDeclarationsAct1960.
WAN AHMAD SANUSI MAHMOOD
SubscribedandsolemnlydeclaredbytheabovenamedWAN AHMAD SANUSI MAHMOODintheFederalTerritoryofLabuanonthis
Beforeme,
76 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
STATEMENTS OF FINANCIAL POSITION ASOF31DECEMBER2018
THE GROUP THE AUTHORITY
NOTE 2018RM
2017RM
2018RM
2017RM
ASSETSNon-current assetsProperty,plantandequipmentInvestmentinsubsidiaryDeferredtaxassetOtherreceivables
9101112
83,236,448
5,893753,376
86,051,318-
6,4051,393,615
82,297,259900,000
753,376
85,173,535900,000
-1,393,615
83,995,717 87,451,338 83,950,635 87,467,150
Current assetsFeesandreceivablesInventoriesCashandbankbalances
121314
15,936,389318,776
73,341,268
15,094,795245,255
67,967,574
19,570,034-
60,495,305
18,732,826-
63,082,152
89,596,432 83,307,624 80,065,339 81,814,978
Total assets 173,592,150 170,758,962 164,015,974 169,282,128
RESERVES AND LIABILITIES
ReservesAccumulatedsurplus 76,806,267 70,449,007 69,892,478 64,748,184
Non-current liabilitiesDeferredincomeGovernmentloans
1516
72,012,294 2,000,000
73,688,6544,000,000
72,012,2942,000,000
73,688,6544,000,000
74,012,294 77,688,654 74,012,294 77,688,654
Current liabilitiesDeferredincomeOtherpayablesGovernmentloans
151716
2,995,53217,778,0572,000,000
3,643,41917,477,8821,500,000
2,202,62915,908,5732,000,000
2,579,93722,765,3531,500,000
22,773,589 22,621,301 20,111,202 26,845,290
Total liabilities 96,785,883 100,309,955 94,123,496 104,533,944
Total reserves and liabilities 173,592,150 170,758,962 164,015,974 169,282,128
Theaccompanyingaccountingpoliciesandexplanatorynotesformanintegralpartofthefinancialstatements.
77ANNUAL REPORT 2018
STATEMENTS OF COMPREHENSIVE INCOME FORTHEYEARENDED31DECEMBER2018
THE GROUP THE AUTHORITY
NOTE 2018RM
2017RM
2018RM
2017RM
Revenue
Other operating incomeGovernmentgrantIncomefrominvestmentsOtherincome
OtheroperatingexpenseStaffcostsDepreciationofproperty,plantandequipment
Otherexpenses
4
1556
7
96
60,288,930
2,409,7372,557,752777,118
(32,430,500)
(5,228,953)(22,003,538)
58,684,491
2,065,8802,554,079432,982
(34,553,062)
(4,684,842)(21,525,356)
57,400,773
2,053,6682,557,752249,987
(24,921,362)
(4,889,291)(27,307,233)
55,880,475
1,963,4802,554,079214,295
(26,407,201)
(4,395,042)(27,829,972)
SurplusbeforetaxIncometaxexpenses 8
6,370,546(13,286)
2,974,172(2,776)
5,144,294-
1,980,114-
Net surplus for the year 6,357,260 2,971,396 5,144,294 1,980,114
Othercomprehensiveincome, netofincometax - -
Total comprehensive surplus for the year 6,357,260 2,971,396 5,144,294 1,980,114
Total comprehensive surplus attributable to the Authority 6,357,260 2,971,396 5,144,294 1,980,114
Theaccompanyingaccountingpoliciesandexplanatorynotesformanintegralpartofthefinancialstatements.
78 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
STATEMENTS OF CHANGES IN RESERVES FORTHEYEARENDED31DECEMBER2018
ACCUMULATEDSURPLUS
RM
THE GROUP
Opening balance at 1 January 2017Netsurplusfortheyear
67,477,6112,971,396
Closing balance at 31 December 2017 70,449,007
Opening balance at 1 January 2018Netsurplusfortheyear
70,449,0076,357,260
Closing balance at 31 December 2018 76,806,267
THE AUTHORITY
Opening balance at 1 January 2017Netsurplusfortheyear
62,768,0701,980,114
Closing balance at 31 December 2017 64,748,184
Opening balance at 1 January 2018Netsurplusfortheyear
64,748,1845,144,294
Closing balance at 31 December 2018 69,892,478
Theaccompanyingaccountingpoliciesandexplanatorynotesformanintegralpartofthefinancialstatements.
79ANNUAL REPORT 2018
STATEMENTS OF CASH FLOWSFORTHEFINANCIALYEARENDED31DECEMBER2018
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
OPERATING ACTIVITIESNetsurplusfortheyear
Adjustmentsfor:Incometaxexpenses/(credit)UnrealisedlossonforeignexchangeDepreciationofproperty,plantandequipmentDividendincomeUtilisationofgovernmentgrantLoss/(Gain)ondisposalofproperty,plantandequipment
Property,plantandequipmentwrittenoffInterestincomefrominvestmentsandstaffloansNetfairvalue(gain)/lossonotherreceivablesAllowanceforimpairmentlossesonfeesandtradereceivablesrecognised
Allowanceforimpairmentlossesonfeesandtradereceivablesreversed
AmountowingbysubsidiarieswrittenoffFeesandtradereceivableswrittenoff
6,357,260
51233,030
5,228,953-
(2,324,247)
(26,078)3,793
(2,184,159)(90,040)
3,201,422
(3,170,249)-
2,600,300
2,971,396
2,77684,409
4,684,842-
(2,065,880)
(8,867)231
(2,601,130)(142,317)
3,729,607
(3,447,185)-
2,788,515
5,144,294
-26,981
4,889,291
(2,053,668)
(24,618)3,792
(2,589,674)(90,040)
3,201,422
(3,170,249)11,018
2,600,300
1,980,114
-76,094
4,395,042-
(1,963,480)
(5,760)-
(2,601,130)(142,317)
3,715,566
(3,445,350)11,054
2,784,300
OperatingSurplusBeforeWorkingCapitalChangesChangesinworkingcapital:Increase/(Decrease)in:FeesandtradereceivablesOtherreceivablesInventoriesAmountsduefromsubsidiariesIncrease/(Decrease)in:FeesreceivedinadvanceRefundabledepositsOtherpayablesandaccrualsAmountduetosubsidiary
9,630,497
(3,302,802)620,061(73,521)
-
(2,851,806)20,314
3,141,666-
5,996,397
(3,259,337)1,312,383(140,960)
-
1,614,051(218,574)
(1,369,898)-
7,948,849
(3,335,464)646,091
--
(2,851,806)-
2,995,025(7,000,000)
4,804,133
(3,222,205)1,733,613
--
1,614,051(200,000)
(3,073,766)875,000
CashGeneratedFromOperatingActivitiesInterestreceived
7,184,40966,059
3,934,062435,560
(1,597,305)76,059
2,530,826435,560
NetCashFromOperatingActivities 7,250,468 4,369,622 (1,521,246) 2,966,386
80 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
STATEMENTS OF CASH FLOWS FORTHEFINANCIALYEARENDED31DECEMBER2018
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
INVESTING ACTIVITIESNetincreaseinfixed depositswithmaturityperiodofmorethan3months
Proceedsfromdisposalof plantandequipmentAdditionsofproperty,plantandequipmentDividendincomeInterestreceived
(4,000,000)
51,054(2,442,852)
-2,048,054
-
128,612(3,779,845)
-2,415,995
(1,000,000)49,566
(2,041,755)
2,453,569
-
125,505(3,350,046)
-2,415,995
NetCashUsedInInvestingActivities (4,343,744) (1,235,238) (538,620) (808,546)
FINANCING ACTIVITIESRepaymentofgovernmentloans (1,500,000) (1,500,000) (1,500,000) (1,500,000)
NetCashUsedInFinancingActivities (1,500,000) (1,500,000) (1,500,000) (1,500,000)
Net increase / (decrease) in cash and cash equivalents
Cash and cash equivalents at 1 JanuaryEffectofexchangedifference
1,406,72412,967,574
(33,030)
1,634,38411,417,599
(84,409)
(3,559,866)8,082,152(26,981)
657,8407,500,406(76,094)
Cash and cash equivalents at 31 December (Note 21) 14,341,268 12,967,574 4,495,305 8,082,152
Theaccompanyingaccountingpoliciesandexplanatorynotesformanintegralpartofthefinancialstatements.
81ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
1. CORPORATE INFORMATION
TheLabuanFinancialServicesAuthoritywasestablishedon15February1996.TheregisteredofficeandprincipalplaceofoperationsoftheAuthorityarelocatedatLevel17,MainOfficeTower,FinancialParkComplex,JalanMerdeka,87000FederalTerritoryofLabuan,Malaysia.
ThemainactivitiesoftheAuthorityaretopromoteanddevelopLabuan,Malaysiaasaninternationalbusinessandfinancialcentreandtodevelopnationalobjectives,policiesandprioritiesfortheorderlydevelopmentandadministrationoffinancialservicesinLabuan.
TheprincipalactivitiesofthesubsidiarycompaniesaredisclosedinNote10.
TherehavebeennosignificantchangesinthenatureoftheprincipalactivitiesoftheAuthorityanditssubsidiarycompaniesduringthefinancialyear.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Basis of preparation
ThefinancialstatementsoftheGroupandtheAuthorityhavebeenpreparedinaccordancewithMalaysianFinancialReportingStandards(MFRS)issuedbyMalaysianAccountingStandardBoard(MASB)andInternationalFinancialReportingStandards(IFRS).
ThefinancialstatementsoftheGroupandtheAuthorityhavebeenpreparedonahistoricalbasis.
2.2 Changes in accounting policies
Theaccountingpoliciesadoptedareconsistentwiththoseofthepreviousfinancialyearexceptasfollows:
On1January2018,theGroupandtheAuthorityadoptedthefollowingnewstandardsandamendmentstoMFRSforannualfinancialperiodsbeginningonorafter1January2018.
MFRS9 FinancialInstrumentsMFRS15 RevenuefromContractswithCustomersAmendmentstoMFRS15 ClarificationtoMFRS15AmendmentstoMFRS1andMFRS128 AnnualImprovementstoMFRSStandards2014-2016CycleAmendmenttoMFRS2 ClassificationandMeasurementofShare-basedPaymentTransactionsAmendmenttoMFRS4 ApplyingMFRS9FinancialInstrumentwithMFRS4InsuranceContractsAmendmenttoMFRS140 TransferofInvestmentPropertyICInterpretation22 ForeignCurrencyTransactionandAdvanceConsideration
ThemanagementisoftheopinionthattheadoptionoftheaboveamendmentsdidnothaveanyeffectonthefinancialperformanceorpositionoftheGroupandtheAuthority.
82 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.3 Standards issued but not yet effective
TheGroupandtheAuthorityhavenotappliedthefollowingnewandrevisedMFRSsandInterpretationthathavebeenissuedbutarenotyeteffective:
MFRS16 Leases1
MFRS17 InsuranceContract3
AmendmenttoMFRS10andMFRS128 SaleorContributionofAssetsMFRS16 Leases2
AmendmentstoMFRS2 ClassificationandMeasurementofShare-basedPaymentTransactions1
AmendmentstoMFRS10andMFRS128 SaleorContributionofAssetsbetweenanInvestoranditsAssociateor JointVenture4
AmendmentstoMFRS3 BusinessCombinations1
AmendmentstoMFRS9 PrepaymentFeatureswithNegativeCompensation1
ICInterpretation22 ForeignCurrencyTransactionsandAdvanceConsideration1 ICInterpretation23 UncertaintyOverIncomeTaxTreatments2
AmendmenttoMFRS1 First-timeAdoptionofMalaysianFinancialReportingStandards1
AmendmenttoMFRS3 BusinessCombinations2
AmendmenttoMFRS9 PrepaymentFeatureswithNegativeCompensation2
AmendmentstoMFRS11 JointArrangement2
AmendmentstoMFRS112 IncomeTaxes2
AmendmentstoMFRS119 PlanAmendment,CurtailmentorSettlement1
AmendmentstoMFRS123 BorrowingCosts1
AmendmenttoMFRS128 Long-termInterestinAssociatesandJointVentures1
AmendmenttoMFRSs AmendmenttoReferencetoConceptualFrameworkinMFRSStandards2
ICInterpretation23 UncertaintyoverIncomeTaxTreatments1
1 EffectiveforannualperiodsbeginningonorafterJanuary1,2019,withearlierapplicationpermitted.2 EffectiveforannualperiodsbeginningonorafterJanuary1,2020,withearlierapplicationpermitted.3 EffectiveforannualperiodsbeginningonorafterJanuary1,2021withearlierapplicationpermitted.4 Effectiveforannualperiodsbeginningonorafteradatetobedetermined.
ThemanagementanticipatesthattheabovementionedStandardsandamendmentstoStandardswillbeadoptedinthefinancialstatementsoftheGroupandoftheAuthoritywhentheybecomemandatorilyeffectiveforadoption.ThemanagementiscurrentlyassessingtheimpactoftheabovementionedStandards,amendmentstoStandardsandInterpretation.Asofthedateofauthorisationofissueofthefinancialstatements,thisassessmentprocessisstillon-going.Thus,theimpactofadoptingtheabovementionedStandards,amendmentstoStandardsandInterpretationcannotbedeterminedandestimatedreliablynowuntiltheprocessiscomplete.
83ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.4 Basis of consolidation
TheconsolidatedfinancialstatementscomprisethefinancialstatementsoftheAuthorityanditssubsidiariesasatthereportingdate.ThefinancialstatementsofthesubsidiariesusedinthepreparationoftheconsolidatedfinancialstatementsarepreparedforthesamereportingdateastheAuthority.Consistentaccountingpoliciesareappliedforliketransactionsandeventsinsimilarcircumstances.
TheAuthoritycontrolsaninvesteeifandonlyiftheAuthorityhasallthefollowing:
i) Powerovertheinvestee(i.eexistingrightsthatgiveitthecurrentabilitytodirecttherelevantactivitiesoftheinvestee);
ii) Exposure,orrights,tovariablereturnsfromitsinvestmentwiththeinvestee;and
iii) Theabilitytouseitspowerovertheinvesteetoaffectitsreturns.
WhentheAuthorityhaslessthanamajorityofthevotingrightsofaninvestee,theAuthorityconsidersthefollowinginassessingwhetherornottheAuthority’svotingrightsinaninvesteearesufficienttogiveitpowerovertheinvestee:
i) ThesizeoftheAuthority’sholdingofvotingrightsrelativetothesizeanddispersionofholdingsoftheothervoteholders;
ii) PotentialvotingrightsheldbytheAuthority,othervoteholdersorotherparties;
iii) Rightsarisingfromothercontractualarrangements;and
iv) AnyadditionalfactsandcircumstancesthatindicatethattheAuthorityhas,ordoesnothave,thecurrentabilitytodirecttherelevantactivitiesatthetimethatdecisionsneedtobemade,includingvotingpatternsatpreviousshareholders’meetings.
SubsidiariesareconsolidatedwhentheAuthorityobtainscontroloverthesubsidiaryandceaseswhentheAuthoritylosescontrolofthesubsidiary.Allintra-groupbalances,incomeandexpensesandunrealisedgainsandlossesresultingfromintra-grouptransactionsareeliminatedinfull.
ProfitorlossandeachcomponentofothercomprehensiveincomeareattributedtotheownersoftheAuthorityandtothenon-controllinginterest.TotalcomprehensiveincomeofsubsidiariesisattributedtotheownersoftheAuthorityandtothenon-controllinginterestsevenifthisresultsinthenon-controllinginterestshavingadeficitbalance.
ChangesintheGroup’sownershipinterestsinsubsidiariesthatdonotresultintheGrouplosingcontroloverthesubsidiariesareaccountedforasequitytransactions.ThecarryingamountsoftheGroup’sinterestsandthenon-controllinginterestsareadjustedtoreflectthechangesintheirrelativeinterestsinthesubsidiaries.TheresultingdifferenceisrecogniseddirectlyinequityandattributedtoownersoftheAuthority.
84 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.4 Basis of consolidation (Continued)
WhentheGrouplosescontrolofasubsidiary,againorlosscalculatedasthedifferencebetween(i)theaggregateofthefairvalueoftheconsiderationreceivedandthefairvalueofanyretainedinterestand(ii)thepreviouscarryingamountoftheassetsandliabilitiesofthesubsidiaryandanynon-controllinginterest,isrecognisedinprofitorloss.Thesubsidiary’scumulativegainorlosswhichhasbeenrecognisedinothercomprehensiveincomeandaccumulatedinequityarereclassifiedtoprofitorlossorwhereapplicable,transferreddirectlytoretainedearnings.Thefairvalueofanyinvestmentretainedintheformersubsidiaryatthedatecontrolislostisregardedasthecostoninitialrecognitionoftheinvestment.
Business combinations
Acquisitionsofsubsidiariesareaccountedforusingtheacquisitionmethod.Thecostofanacquisitionismeasuredastheaggregateoftheconsiderationtransferred,measuredatacquisitiondatefairvalueandtheamountofanynon-controllinginterestsintheacquiree.TheGroupelectsonatransaction-by-transactionbasiswhethertomeasurethenon-controllinginterestsintheacquireeeitheratfairvalueorattheproportionateshareoftheacquiree’sidentifiablenetassets.Transactioncostsincurredareexpensedandincludedinadministrativeexpenses.
Anycontingentconsiderationtobetransferredbytheacquirerwillberecognisedatfairvalueattheacquisitiondate.Subsequentchangesinthefairvalueofthecontingentconsiderationwhichisdeemedtobeanassetorliability,willberecognisedinaccordancewithMFRS139eitherinprofitorlossorasachangetoothercomprehensiveincome.Ifthecontingentconsiderationisclassifiedasequity,itwillnotberemeasured.Subsequentsettlementisaccountedforwithinequity.IninstanceswherethecontingentconsiderationdoesnotfallwithinthescopeofMFRS139,itismeasuredinaccordancewiththeappropriateMFRS.
WhentheGroupacquiresabusiness,itassessesthefinancialassetsandliabilitiesassumedforappropriateclassificationanddesignationinaccordancewiththecontractualterms,economiccircumstancesandpertinentconditionsasattheacquisitiondate.Thisincludestheseparationofembeddedderivativesinhostcontractsbytheacquiree.
Ifthebusinesscombinationisachievedinstages,theacquisitiondatefairvalueoftheacquirer’spreviouslyheldequityinterestintheacquireeisremeasuredtofairvalueattheacquisitiondatethroughprofitorloss.
Goodwillisinitiallymeasuredatcost,beingtheexcessoftheaggregateoftheconsiderationtransferredandtheamountrecognisedfornon-controllinginterestsoverthenetidentifiableassetsacquiredandliabilitiesassumed.Ifthisconsiderationislowerthanfairvalueofthenetassetsofthesubsidiaryacquired,thedifferenceisrecognisedinprofitorloss.
85ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.5 Subsidiaries
AsubsidiaryisanentityoverwhichtheGrouphasallthefollowing:
(i) Powerovertheinvestee(i.eexistingrightsthatgiveitthecurrentabilitytodirecttherelevantactivitiesoftheinvestee);
(ii) Exposure,orrights,tovariablereturnsfromitsinvestmentwiththeinvestee;and
(iii) Theabilitytouseitspowerovertheinvesteetoaffectitsreturns.
IntheAuthority’sseparatefinancialstatements,investmentsinsubsidiariesareaccountedforatcostlessimpairmentlosses.Ondisposalofsuchinvestments,thedifferencebetweennetdisposalproceedsandtheircarryingamountsisincludedinprofitorloss.
2.6 Foreign currencies
TheindividualfinancialstatementsofeachgroupentityarepresentedinRinggitMalaysia,whichisthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(itsfunctionalcurrency).Forthepurposeoftheconsolidatedfinancialstatements,theresultsandfinancialpositionofeachgroupentityareexpressedinRinggitMalaysia(“RM”),whichisthefunctionalcurrencyoftheAuthorityandthepresentationcurrencyfortheconsolidatedstatements.
Inpreparingthefinancialstatementsoftheindividualentities,transactionsincurrenciesotherthantheentity’sfunctionalcurrency(foreigncurrencies)arerecognisedattheratesofexchangeprevailingatthedatesofthetransactions.Attheendofeachreportingperiod,monetaryitemsdenominatedinforeigncurrenciesareretranslatedattheratesprevailingatthatdate.Non-monetaryitemscarriedatfairvaluethataredenominatedinforeigncurrenciesareretranslatedattheratesprevailingatthedatewhenthefairvaluewasdetermined.Non-monetaryitemsthataremeasuredintermsofhistoricalcostinaforeigncurrencyarenotretranslated.
Exchangedifferencesarerecognisedinprofitorlossintheyearinwhichtheyariseexceptforexchangedifferencesarisingontheretranslationofnon-monetaryitemscarriedatfairvalueinrespectofwhichgainsandlossesarerecognisedinothercomprehensiveincome.Forsuchnon-monetaryitems,theexchangecomponentofthatgainorlossisalsorecognisedinothercomprehensiveincome.TheGroupandtheAuthority’sfinancialstatementsarepresentedinRinggitMalaysia,whichisalsotheAuthority’sfunctionalcurrency.ForeachentitytheGroupdeterminesthefunctionalcurrencyanditemsincludedinthefinancialstatementsofeachentityaremeasuredusingthatfunctionalcurrency.TheGroupusesthedirectmethodofconsolidationandhaselectedtorecyclethegainorlossthatarisesfromthismethod.
86 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.7 Revenue recognition
RevenueisrecognisedtotheextentthatitisprobablethattheeconomicbenefitswillflowtotheGroupandtheAuthorityandtherevenuecanbereliablymeasured,regardlessofwhenthepaymentisbeingmade.Revenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivable,takingintoaccountcontractuallydefinedtermsofpaymentandexcludingtaxesorduty.TheGroupandtheAuthority,assesstheirrevenuearrangementsagainstspecificcriteriainordertodetermineifitisactingasprincipaloragent.TheGroupandtheAuthorityhaveconcludedthatitisactingasaprincipalinallofitsrevenuearrangements.Thefollowingspecificrecognitioncriteriamustalsobemetbeforerevenueisrecognised:
a) Fee income from business
FeescompriseincorporationandregistrationfeesandannualfeesofLabuancompanies,annuallicencefeesforLabuanbanksandinsurancecompaniesandotherrelatedfeesreceivedandreceivable.RevenueisrecognisedwhenservicesareprovidedorupondateofincorporationordateofregistrationofLabuancompaniesandonsubsequentanniversarythereof.Whenfeesreceivableareoverduebymorethancertainperiods,recognitionoffeesissuspendeduntiltheyarerealisedonacashbasis.
b) Other fees
Otherfeeswhichrepresentschoolfees,entrancefeesandexaminationfeesarerecogniseduponperformanceofservicesandtotheextentthattheyareprobablethattheeconomicbenefitswillflowtotheGroupandtherevenuecanbereliablymeasured.
c) Interest income
Interestincomeisrecognisedintheprofitorlossasitaccrues,takingintoaccounttheeffectiveyieldontheasset.
d) Dividend income
Dividendincomefrominvestmentisrecognisedwhentheshareholders’rightstoreceivepaymenthasbeenestablished.
e) Rental income
Rentalincomeisaccruedonatimeproportionbasis,byreferencetotheagreementsenteredinto.
87ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.8 Government grants
Governmentgrantsarerecognisedwherethereisreasonableassurancethatthegrantwillbereceivedandallattachedconditionswillbecompliedwith.Whenthegrantrelatestoanexpenseitem,itisrecognisedasincomeonasystematicbasisovertheperiodsthatthecosts,whichitisintendedtocompensate,areexpensed.Wherethegrantrelatestoanasset,itisrecognisedasincomeinequalamountsovertheexpectedusefullifeoftherelatedasset.Theremainingbalanceareaccountedasdeferredincome.
WhentheGroupreceivesnon-monetarygrants,theassetandthegrantarerecordedgrossatnominalamountsandreleasedtoprofitorlossovertheexpectedusefullifeinapatternofconsumptionofthebenefitoftheunderlyingassetbyequalannualinstalments.Whenloansorsimilarassistanceareprovidedbygovernmentsorrelatedinstitutionswithaninterestratebelowthecurrentapplicablemarketrate,theeffectofthisfavorableinterestisregardedasagovernmentgrant.
2.9 Taxes
a) Currentincometax
Currentincometaxassetsandliabilitiesforthecurrentperiodaremeasuredattheamountexpectedtoberecoveredfromorpaidtothetaxationauthorities.Thetaxratesandtaxlawsusedtocomputetheamountarethosethatareenactedorsubstantivelyenacted,atthereportingdateinthecountrieswheretheGroupandtheAuthorityoperateandgeneratetaxableincome.
Currentincometaxrelatingtoitemsrecogniseddirectlyinequityisrecognisedinequityandnotintheprofitorloss.Managementperiodicallyevaluatespositionstakeninthetaxreturnswithrespecttosituationsinwhichapplicabletaxregulationsaresubjecttointerpretationandestablishesprovisionswhereappropriate.
b) Deferredtax
Deferredtaxisprovidedusingtheliabilitymethodontemporarydifferencesbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsforfinancialreportingpurposesatthereportingdate.
Deferredtaxliabilitiesarerecognisedforalltaxabletemporarydifferences,except:
- Whenthedeferredtaxliabilityarisesfromtheinitialrecognitionofgoodwilloranassetorliabilityinatransactionthatisnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss;and
- Inrespectoftaxabletemporarydifferencesassociatedwithinvestmentsinsubsidiaries,associatesandinterestsinjointventures,whenthetimingofthereversalofthetemporarydifferencescanbecontrolledanditisprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture.
88 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.9 Taxes(Continued)
b) Deferredtax(Continued)
Deferredtaxassetsarerecognisedforalldeductibletemporarydifferences,carryforwardofunusedtaxcreditsandunusedtaxlosses,totheextentthatitisprobablethattaxableprofitwillbeavailableagainstwhichthedeductibletemporarydifferences,andthecarryforwardofunusedtaxcreditsandunusedtaxlossescanbeutilised,except:
- Whenthedeferredtaxassetrelatingtothedeductibletemporarydifferencearisesfromtheinitialrecognitionofanassetorliabilityinatransactionthatisnotabusinesscombinationand,atthetimeofthetransaction,affectsneithertheaccountingprofitnortaxableprofitorloss;and
- Inrespectofdeductibletemporarydifferencesassociatedwithinvestmentsinsubsidiaries,associatesandinterestsinjointventures,deferredtaxassetsarerecognisedonlytotheextentthatitisprobablethatthetemporarydifferenceswillreverseintheforeseeablefutureandtaxableprofitwillbeavailableagainstwhichthetemporarydifferencescanbeutilised.
Thecarryingamountofdeferredtaxassetsisreviewedateachreportingdateandreducedtotheextentthatitisnolongerprobablethatsufficienttaxableprofitwillbeavailabletoallowallorpartofthedeferredtaxassettobeutilised.Unrecogniseddeferredtaxassetsarereassessedateachreportingdateandarerecognisedtotheextentthatithasbecomeprobablethatfuturetaxableprofitswillallowthedeferredtaxassettoberecovered.
Deferredtaxassetsandliabilitiesaremeasuredatthetaxratesthatareexpectedtoapplyintheyearwhentheassetisrealisedortheliabilityissettled,basedontaxrates(andtaxlaws)thathavebeenenactedorsubstantivelyenactedatthereportingdate.
Deferredtaxliabilitiesarisingfrominvestmentpropertiesatfairvaluearemeasuredbasedonthetaxconsequenceofthepresumptionthatthecarryingamountoftheinvestmentpropertiesmeasuredatfairvaluewillberecoveredentirelythroughsale.Thispresumptionisconsistentwiththemanagement’sbusinessmodelfortheGroup’sinvestmentproperties.
Deferredtaxrelatingtoitemsrecognisedoutsideprofitorlossisrecognisedoutsideprofitorloss.Deferredtaxitemsarerecognisedincorrelationtotheunderlyingtransactioneitherinothercomprehensiveincomeordirectlyinequity.
Deferredtaxassetsanddeferredtaxliabilitiesareoffsetifalegallyenforceablerightexiststosetoffcurrenttaxassetsagainstcurrentincometaxliabilitiesandthedeferredtaxesrelatetothesametaxableentityandthesametaxationauthority.
Taxbenefitsacquiredaspartofabusinesscombination,butnotsatisfyingthecriteriaforseparaterecognitionatthatdate,wouldberecognisedsubsequentlyifnewinformationaboutfactsandcircumstanceschanged.Theadjustmentwouldeitherbetreatedasareductiontogoodwill(aslongasitdoesnotexceedgoodwill)ifitisincurredduringthemeasurementperiodorrecognisedinprofitorloss.
89ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.10 Property, plant and equipment
Property,plantandequipmentisstatedatcost,netofaccumulateddepreciationand/oraccumulatedimpairmentlosses,ifany.Suchcostincludesthecostofreplacingpartsoftheproperty,plantandequipmentandborrowingcostsforlong-termconstructionprojectsiftherecognitioncriteriaaremet.Whensignificantpartsofproperty,plantandequipmentarerequiredtobereplacedatintervals,theGroupandtheAuthorityrecognisesuchpartsasindividualassetswithspecificusefullivesanddepreciatesthemaccordingly.Likewise,whenamajorinspectionisperformed,itscostisrecognisedinthecarryingamountoftheplantandequipmentasareplacementiftherecognitioncriteriaaresatisfied.Allotherrepairandmaintenancecostsarerecognisedintheprofitorlossasincurred.Thepresentvalueoftheexpectedcostforthedecommissioningoftheassetafteritsuseisincludedinthecostoftherespectiveassetiftherecognitioncriteriaforaprovisionaremet.
Capitalwork-in-progressisnotdepreciated.Capitalwork-in-progresscomprisescontractors’paymentsanddirectlyattributablecostsincurredinpreparingtheseassetsfortheirintendeduse.Depreciationonassetsunderconstructioncommenceswhentheassetsarereadyfortheirintendeduse.
Depreciationiscomputedonastraight-linebasisovertheestimatedusefullivesoftheassetsasfollows:
Leaseholdland OvertheleaseperiodBuildings 50yearsMotorvehicles 4yearsComputers 3yearsFurniture,fittings,officeequipment,andrenovation 3to7years
Anitemofproperty,plantandequipmentisderecognisedupondisposalorwhennofutureeconomicbenefitsareexpectedfromitsuseordisposal.Anygainorlossarisingonderecognitionoftheasset(calculatedasthedifferencebetweenthenetdisposalproceedsandthecarryingamountoftheasset)isincludedintheprofitorlosswhentheassetisderecognised.
Theresidualvalues,usefullivesandmethodsofdepreciationofproperty,plantandequipmentarereviewedateachfinancialyear-endandadjustedprospectively,ifappropriate.
2.11 Leases
Thedeterminationofwhetheranarrangementis,orcontains,aleaseisbasedonthesubstanceofthearrangementattheinceptiondate.Thearrangementisassessedforwhetherfulfilmentofthearrangementisdependentontheuseofaspecificassetorassetsorthearrangementconveysarighttousetheassetorassets,evenifthatrightisnotexplicitlyspecifiedinanarrangement.
Operatingleasepaymentsarerecognisedasanoperatingexpenseintheprofitorlossonastraight-linebasisovertheleaseterm.
90 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.12 Financial instruments
i) Financial assets
Afinancialinstrumentisanycontractthatgivesrisetoafinancialassetofoneentityandafinancialliabilityorequityinstrumentofanotherentity.
Initial recognition and measurement
Financialassetsareclassified,atinitialrecognition,andsubsequentlymeasuredatamortisedcost,fairvaluethroughothercomprehensiveincome(OCI),orfairvaluethroughprofitorloss.
Theclassificationoffinancialassetsatinitialrecognitiondependsonthefinancialasset’scontractualcashflowcharacteristicsandtheGroupandtheAuthority’sbusinessmodelformanagingthem.WiththeexceptionoftradereceivablesthatdonotcontainasignificantfinancingcomponentorforwhichtheGroupandtheAuthorityhasappliedthepracticalexpedient,theGroupandtheAuthorityinitiallymeasuresafinancialassetatitsfairvalueplus,inthecaseofafinancialassetnotatfairvaluethroughprofitorloss,transactioncosts.
InorderforafinancialassettobeclassifiedandmeasuredatamortisedcostorfairvaluethroughOCI, itneedstogiverisetocashflowsthatare‘solelypaymentsofprincipalandinterest(SPPI)’ontheprincipalamountoutstanding.ThisassessmentisreferredtoastheSPPItestandisperformedataninstrumentlevel.
TheGroupandtheAuthority’sbusinessmodelformanagingfinancialassetsreferstohowitmanagesitsfinancialassetsinordertogeneratecashflows.Thebusinessmodeldetermineswhethercashflowswillresultfromcollectingcontractualcashflows,sellingthefinancialassets,orboth.
Purchasesorsalesoffinancialassetsthatrequiredeliveryofassetswithinatimeframeestablishedbyregulationorconventioninthemarketplace(regularwaytrades)arerecognisedonthetradedate,i.e., thedatethattheGroupandtheAuthoritycommitstopurchaseorselltheasset.
Subsequent measurement
Forpurposesofsubsequentmeasurement,financialassetsareclassifiedinfourcategories:
• Financialassetsatamortisedcost(debtinstruments) • FinancialassetsatfairvaluethroughOCIwithrecyclingofcumulativegainsandlosses(debtinstruments) • FinancialassetsdesignatedatfairvaluethroughOCIwithnorecyclingofcumulativegainsandlosses
uponderecognition(equityinstruments) • Financialassetsatfairvaluethroughprofitorloss
Financial assets at amortised cost (debt instruments)
TheGroupandtheAuthoritymeasuresfinancialassetsatamortisedcostifbothofthefollowingconditionsaremet:
• Thefinancialassetisheldwithinabusinessmodelwiththeobjectivetoholdfinancialassetsinordertocollectcontractualcashflows;and
• Thecontractualtermsofthefinancialassetgiveriseonspecifieddatestocashflowsthataresolely
paymentsofprincipalandinterestontheprincipalamountoutstanding
Financialassetsatamortisedcostaresubsequentlymeasuredusingtheeffectiveinterest(EIR)methodandaresubjecttoimpairment.Gainsandlossesarerecognisedinprofitorlosswhentheassetisderecognised,modifiedorimpaired.
91ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.12 Financial instruments (Continued)
i) Financial assets (Continued)
Financial assets at fair value through profit or loss
Financialassetsatfairvaluethroughprofitorlossincludefinancialassetsheldfortrading,financialassetsdesignateduponinitialrecognitionatfairvaluethroughprofitorloss,orfinancialassetsmandatorilyrequiredtobemeasuredatfairvalue.Financialassetsareclassifiedasheldfortradingiftheyareacquiredforthepurposeofsellingorrepurchasinginthenearterm.Derivatives,includingseparatedembeddedderivatives,arealsoclassifiedasheldfortradingunlesstheyaredesignatedaseffectivehedginginstruments.Financialassetswithcashflowsthatarenotsolelypaymentsofprincipalandinterestareclassifiedandmeasuredatfairvaluethroughprofitorloss,irrespectiveofthebusinessmodel.NotwithstandingthecriteriafordebtinstrumentstobeclassifiedatamortisedcostoratfairvaluethroughOCI,asdescribedabove,debtinstrumentsmaybedesignatedatfairvaluethroughprofitorlossoninitialrecognitionifdoingsoeliminates,orsignificantlyreduces,anaccountingmismatch.
Financialassetsatfairvaluethroughprofitorlossarecarriedinthestatementoffinancialpositionatfairvaluewithnetchangesinfairvaluerecognisedinthestatementofprofitorloss.
ThiscategoryincludesderivativeinstrumentsandlistedequityinvestmentswhichtheGroupandtheAuthorityhadnotirrevocablyelectedtoclassifyatfairvaluethroughOCI.Dividendsonlistedequityinvestmentsarealsorecognisedasotherincomeinthestatementofprofitorlosswhentherightofpaymenthasbeenestablished.
AllothercategoriesoffinancialassetsarenotrelevanttotheGroupandtheAuthority.
Impairmentoffinancialassets
TheGroupandtheAuthorityrecognisesanallowanceforexpectedcreditlosses(ECLs)foralldebtinstrumentsnotheldatfairvaluethroughprofitorloss.ECLsarebasedonthedifferencebetweenthecontractualcashflowsdueinaccordancewiththecontractandallthecashflowsthattheGroupandtheAuthorityexpectstoreceive,discountedatanapproximationoftheoriginaleffectiveinterestrate.Theexpectedcashflowswillincludecashflowsfromthesaleofcollateralheldorothercreditenhancementsthatareintegraltothecontractualterms.
ECLsarerecognisedintwostages.Forcreditexposuresforwhichtherehasnotbeenasignificantincreaseincreditrisksinceinitialrecognition,ECLsareprovidedforcreditlossesthatresultfromdefaulteventsthatarepossiblewithinthenext12-months(a12-monthECL).Forthosecreditexposuresforwhichtherehasbeenasignificantincreaseincreditrisksinceinitialrecognition,alossallowanceisrequiredforcreditlossesexpectedovertheremaininglifeoftheexposure,irrespectiveofthetimingofthedefault(alifetimeECL).
Fortradereceivablesandcontractassets,theGroupandtheAuthorityappliesasimplifiedapproachincalculatingECLs.Therefore,theGroupandtheAuthoritydoesnottrackchangesincreditrisk,butinsteadrecognisesalossallowancebasedonlifetimeECLsateachreportingdate.TheGroupandtheAuthorityhasestablishedaprovisionmatrixthatisbasedonitshistoricalcreditlossexperience,adjustedforforward-lookingfactorsspecifictothedebtorsandtheeconomicenvironment.
TheGroupandtheAuthorityconsidersafinancialassetindefaultwhencontractualpaymentsare90dayspastdue.However,incertaincases,theGroupandtheAuthoritymayalsoconsiderafinancialassettobeindefaultwheninternalorexternalinformationindicatesthattheGroupandtheAuthorityisunlikelytoreceivetheoutstandingcontractualamountsinfullbeforetakingintoaccountanycreditenhancementsheldbytheGroupandtheAuthority.Afinancialassetiswrittenoffwhenthereisnoreasonableexpectationofrecoveringthecontractualcashflows.
92 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.12 Financial instruments (Continued)
i) Financial assets (Continued)
Derecognition
Afinancialasset(or,whereapplicable,apartofafinancialassetorpartofagroupofsimilarfinancialassets)isprimarilyderecognised(i.e.removedfromtheGroupandtheAuthority’sstatementoffinancialposition)when:
- Therightstoreceivecashflowsfromtheassethaveexpired,or - TheGroupandtheAuthorityhastransferreditsrightstoreceivecashflowsfromtheassetorhasassumed
anobligationtopaythereceivedcashflowsinfullwithoutmaterialdelaytoathirdpartyundera‘pass-through’arrangement;andeither(a)theGroupandtheAuthorityhastransferredsubstantiallyalltherisksandrewardsoftheasset,or(b)theGroupandtheAuthorityhasneithertransferrednorretainedsubstantiallyalltherisksandrewardsoftheasset,buthastransferredcontroloftheasset.
WhentheGroupandtheAuthorityhastransferreditsrightstoreceivecashflowsfromanassetorhasenteredintoapass-througharrangement,itevaluatesifandtowhatextentithasretainedtherisksandrewardsofownership.Whenithasneithertransferrednorretainedsubstantiallyalloftherisksandrewardsoftheasset,nortransferredcontroloftheasset,theGroupandtheAuthoritycontinuestorecognisethetransferredassettotheextentoftheGroupandtheAuthority’scontinuinginvolvementinit.Inthatcase,theGroupandtheAuthorityalsorecognisesanassociatedliability.ThetransferredassetandtheassociatedliabilityaremeasuredonabasisthatreflectstherightsandobligationsthattheGroupandtheAuthorityhasretained.
ContinuinginvolvementthattakestheformofaguaranteeoverthetransferredassetismeasuredattheloweroftheoriginalcarryingamountoftheassetandthemaximumamountofconsiderationthattheGroupandtheAuthoritycouldberequiredtorepay.
2.13 Fair value measurement
TheGroupandtheAuthoritymeasurefinancialinstruments,suchas,derivatives,andnon-financialassetssuchasinvestmentproperties,atfairvalueateachreportingdate.Also,fairvaluesoffinancialinstrumentsmeasuredatamortisedcostaredisclosedinNote20.
Fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate.Thefairvaluemeasurementisbasedonthepresumptionthatthetransactiontoselltheassetortransfertheliabilitytakesplaceeither:
- Intheprincipalmarketfortheassetorliability,or- Intheabsenceofaprincipalmarket,inthemostadvantageousmarketfortheassetorliability
TheprincipalorthemostadvantageousmarketmustbeaccessibletobytheGroupandtheAuthority.
Thefairvalueofanassetoraliabilityismeasuredusingtheassumptionsthatmarketparticipantswouldusewhenpricingtheassetorliability,assumingthatmarketparticipantsactintheireconomicbestinterest.
Afairvaluemeasurementofanon-financialassettakesintoaccountamarketparticipant’sabilitytogenerateeconomicbenefitsbyusingtheassetinitshighestandbestuseorbysellingittoanothermarketparticipantthatwouldusetheassetinitshighestandbestuse.
93ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.13 Fair value measurement (Continued)
TheGroupandtheAuthorityusevaluationtechniquesthatareappropriateinthecircumstancesandforwhichsufficientdataareavailabletomeasurefairvalue,maximisingtheuseofrelevantobservableinputsandminimisingtheuseofunobservableinputs.
Allassetsandliabilitiesforwhichfairvalueismeasuredordisclosedinthefinancialstatementsarecategorisedwithinthefairvaluehierarchy,describedasfollows,basedonthelowestlevelinputthatissignificanttothefairvaluemeasurementasawhole:
Level1-Quoted(unadjusted)marketpricesinactivemarketsforidenticalassetsorliabilities.
Level2-Valuationtechniquesforwhichthelowestlevelinputthatissignificanttothefairvaluemeasurementisdirectlyorindirectlyobservable.
Level3-Valuationtechniquesforwhichthelowestlevelinputthatissignificanttothefairvaluemeasurementisunobservable.
Forassetsandliabilitiesthatarerecognisedinthefinancialstatementsonarecurringbasis,theGroupandtheAuthoritydeterminewhethertransfershaveoccurredbetweenLevelsinthehierarchybyre-assessingcategorization(basedonthelowestlevelinputthatissignificanttothefairvaluemeasurementasawhole)attheendofeachreportingperiod.
Forthepurposeoffairvaluedisclosures,theGroupandtheAuthorityhavedeterminedclassesofassetsandliabilitiesonthebasisofthenature,characteristicsandrisksoftheassetorliabilityandthelevelofthefairvaluehierarchyasexplainedabove.
2.14 Impairmentofnon-financialassets
TheGroupandtheAuthorityassessateachreportingdatewhetherthereisanindicationthatanassetmaybeimpaired.Ifanyindicationexists,orwhenannualimpairmenttestingforanassetisrequired,theGroupandtheAuthorityestimatetheasset’srecoverableamount.Anasset’srecoverableamountisthehigherofanasset’sorcash-generatingunit’s(CGU)fairvaluelesscoststosellanditsvalueinuse.Itisdeterminedforanindividualasset,unlesstheassetdoesnotgeneratecashinflowsthatarelargelyindependentofthosefromotherassetsorgroupsofassets.WherethecarryingamountofanassetorCGUexceedsitsrecoverableamount,theassetisconsideredimpairedandiswrittendowntoitsrecoverableamount.Inassessingvalueinuse,theestimatedfuturecashflowsarediscountedtotheirpresentvalueusingapre-taxdiscountratethatreflectscurrentmarketassessmentsofthetimevalueofmoneyandtherisksspecifictotheasset.Indeterminingfairvaluelesscoststosell,recentmarkettransactionsaretakenintoaccount,ifavailable.Ifnosuchtransactionscanbeidentified,anappropriatevaluationmodelisused.Thesecalculationsarecorroboratedbyvaluationmultiples,quotedsharepricesforpubliclytradedsubsidiariesorotheravailablefairvalueindicators.
TheGroupandtheAuthoritybasetheirimpairmentcalculationondetailedbudgetsandforecastswhicharepreparedseparatelyforeachoftheGroupandtheAuthority’sCGUtowhichtheindividualassetsareallocated.Thesebudgetsandforecastcalculationsaregenerallycoveringaperiodoffiveyears.Forlongerperiods,along-termgrowthrateiscalculatedandappliedtoprojectfuturecashflowsafterthefifthyear.
Impairmentlossesofcontinuingoperations,includingimpairmentoninventories,arerecognisedintheprofitorlossinthoseexpensecategoriesconsistentwiththefunctionoftheimpairedasset,exceptforapropertypreviouslyrevaluedwheretherevaluationwastakentoothercomprehensiveincome.Inthiscase,theimpairmentisalsorecognisedinothercomprehensiveincomeuptotheamountofanypreviousrevaluation.
94 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.14 Impairmentofnon-financialassets(Continued)
Forassetsexcludinggoodwill,anassessmentismadeateachreportingdateastowhetherthereisanyindicationthatpreviouslyrecognisedimpairmentlossesmaynolongerexistormayhavedecreased.Ifsuchindicationexists,theGroupandtheAuthorityestimatetheasset’sorCGU’srecoverableamount.Apreviouslyrecognisedimpairmentlossisreversedonlyiftherehasbeenachangeintheassumptionsusedtodeterminetheasset’srecoverableamountsincethelastimpairmentlosswasrecognised.Thereversalislimitedsothatthecarryingamountoftheassetdoesnotexceeditsrecoverableamount,norexceedthecarryingamountthatwouldhavebeendetermined,netofdepreciation,hadnoimpairmentlossbeenrecognisedfortheassetinprioryears.Suchreversalisrecognisedintheprofitorlossunlesstheassetiscarriedatarevaluedamount,inwhichcasethereversalistreatedasarevaluationincrease.
2.15 Inventories
Inventoriesarevaluedatthelowerofcostandnetrealisablevalue.
Costsincurredinbringingeachproducttoitspresentlocationandconditionisaccountedforfirstin,firstoutbasis.
Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusiness,lessestimatedcostsnecessarytomakethesale.
2.16 Provisions
ProvisionsarerecognisedwhentheGroupandtheAuthorityhaveapresentobligation(legalorconstructive)asaresultofapastevent,itisprobablethatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligationandareliableestimatecanbemadeoftheamountoftheobligation.WheretheGroupandtheAuthorityexpectsomeorallofaprovisiontobereimbursed,thereimbursementisrecognisedasaseparateassetbutonlywhenthereimbursementisvirtuallycertain.Theexpenserelatingtoaprovisionispresentedintheprofitorlossnetofanyreimbursement.
2.17 Employeebenefits
Short-term employee benefit
Short-termemployeebenefitobligationsinrespectofsalaries,annualbonuses,paidannualleaveandsickleavearemeasuredonanundiscountedbasisandareexpensedastherelatedservicesprovided.
Aliabilityisrecognizedfortheamountexpectedtobepaidundershort-termcashbonusorprofit-sharingplansiftheGrouphaspresentlegalorconstructiveobligationtopaythisamountasaresultofpastserviceprovidedbytheemployeeandobligationcanbeestimatedreliably. Defined contribution plans
TheGroupparticipatesinthenationalpensionschemesasdefinedbythelawsofthecountriesinwhichithasoperations.TheGroupmakescontributionstotheEmployeeProvidentFundinMalaysia,adefinedcontributionpensionscheme.Contributionstodefinedcontributionpensionschemesarerecognisedasanexpenseintheperiodinwhichtherelatedserviceisperformed.
95ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
2.18 Cash and cash equivalents
TheGroupandtheAuthorityadopttheindirectmethodinthepreparationofthestatementsofcashflows. Cashequivalentsareshort-term,highlyliquidinvestmentswithmaturitiesofthreemonthsorlessfromthedateofacquisitionandarereadilyconvertibletocashwithinsignificantrisksofchangesinvalue.
3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES
ThepreparationoftheGroup’sfinancialstatementsrequiresmanagementtomakejudgements,estimatesandassumptionsthataffectthereportedamountsofrevenues,expenses,assetsandliabilities,andthedisclosureofcontingentliabilitiesatthereportingdate.However,uncertaintyabouttheseassumptionsandestimatescouldresultinoutcomesthatcouldrequireamaterialadjustmenttothecarryingamountoftheassetorliabilityaffectedinthefuture.
IntheprocessofapplyingaccountingpoliciesoftheGroup,themanagementisoftheopinionthattherearenoinstancesofapplicationofjudgementwhichareexpectedtohaveasignificanteffectontheamountsrecognisedinthefinancialstatements.
3.1 Key sources of estimation uncertainty
Thekeyassumptionsconcerningthefutureandotherkeysourcesofestimationuncertaintyatthereportingdatethathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow:
a) Impairment of fees and receivables
TheGroupandtheAuthorityassessesateachreportingdatewhetherthereisanyobjectiveevidencethatafinancialassetisimpaired.Todeterminewhetherthereisobjectiveevidenceofimpairment,theGroupandtheAuthorityconsidersfactorssuchastheprobabilityofinsolvencyorsignificantfinancialdifficultiesofthereceivablesanddefaultorsignificantdelayinpayments.
b) Impairment of fees and receivables
Wherethereisobjectiveevidenceofimpairment,theamountandtimingoffuturecashflowsareestimatedbasedonhistoricallossexperienceforassetswithsimilarcreditriskcharacteristics.
c) Deferredtaxassets
Deferredtaxassetsarerecognisedforallunusedtaxlossesandunabsorbedcapitalallowancestotheextentthatitisprobablethattaxableprofitwillbeavailableagainstwhichthelossesandcapitalallowancescanbeutilised.Significantmanagementjudgementisrequiredtodeterminetheamountofdeferredtaxassetsthatcanberecognised,baseduponthelikelytimingandleveloffuturetaxableprofitstogetherwithfuturetaxplanningstrategies.
d) Estimated useful lives of property, plant and equipment
TheGroupandtheAuthorityregularlyreviewtheestimatedusefullivesofproperty,plantandequipmentbasedonfactorssuchasbusinessplanandstrategiesandexpectedlevelofusage.Futureresultsofoperationscouldbemateriallyaffectedbychangesintheseestimatesbroughtaboutbychangesinthefactorsmentionedabove.Areductionintheestimatedusefullivesofproperty,plantandequipmentwouldincreasetherecordeddepreciationanddecreasethevalueofproperty,plantandequipment.
96 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
4. REVENUE
5. INCOME FROM INVESTMENTS
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Feeincomefrom:
LicenceFees
AnnualFees
Incorporation&Registration
Marketing/AdminOffice
Otherfees
34,645,858
15,587,250
1,263,550
1,510,000
7,282,272
35,250,768
14,971,150
1,165,750
1,548,755
5,748,068
34,645,858
15,587,250
1,263,550
1,510,000
4,394,115
35,250,768
14,971,150
1,165,750
1,548,755
2,944,052
60,288,930 58,684,491 57,400,773 55,880,475
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Interestreceivedfrom:
Fixeddeposits
Moneyatcall
Dividendincome
2,513,616
44,136
2,535,570
18,509
-
2,513,616
44,136
-
2,535,570
18,509
-
2,557,752 2,554,079 2,557,752 2,554,079
97ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
6. OTHER INCOME/(EXPENSES)
Includedinotheroperatingincome/(expenses)arethefollowing:
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Interestincomefromstaffloans:KeymanagementpersonnelOthersRentalincomeMiscellaneousincome(Loss)/Gainondisposalofproperty,plantandequipment
(Loss)/Gainonforeignexchange:RealisedUnrealisedAllowanceforimpairmentlossesonfeesandtradereceivablesreversed
Operationalandmarketingexpenditureincurredunderthegovernmentgrant*
AuditfeesRentalofpremisesFeesandtradereceivablewrittenoffAmountowingbysubsidiarycompanies writtenoff
Members’remunerationPropertyPlant&EquipmentWrittenOffContributionstoLabuanFSAStaffWelfareFundGranttoasubsidiary**LeaseofmachineryandequipmentTuitionfeespaidtoasubsidiaryAllowanceforimpairmentlossesonfeesandtradereceivablesrecognised
Netfairvaluegain/(loss)onotherreceivables
1,49930,424373,225234,451
26,078
(404)(33,030)
3,175,675
(337,308)(91,230)
(1,924,938)(2,660,967)
-(365,646)
-(250,000)
-(142,273)
-
(3,267,515)90,040
5,89341,158105,492512,754
8,867
(47,028)(84,409)
3,447,185
(389,520)(66,380)
(1,987,740)(2,788,515)
-(607,597)
(231)(350,000)
-(152,279)
-
(3,729,607)142,317
1,49930,424192,00029,331
24,618
(404)(26,981)
3,170,249
(377,308)(45,730)
(1,664,052)(2,600,300)
(11,018)(277,720)
-(250,000)
(6,900,000)(142,273)(235,503)
(3,201,422)90,040
5,89341,158192,00090,891
5,760
(45,311)(76,094)
3,445,350
(287,120)(22,800)
(1,718,996)(2,784,300)
(11,054)(306,000)
-(350,000)
(6,750,000)(152,279)(318,019)
(3,715,566)142,317
*Theseincludedthefollowingexpenditures:
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Infrastructureforschoolbuilding (377,308) (287,119) (377,308) (287,119)
**GrantfromLabuanFSAtoPristineEraSdnBhd.
98 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Staffcosts* 32,430,500 34,553,062 24,921,362 26,407,201
*Theseincludedthefollowingstaffcosts:
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Keymanagementpersonnel:SalariesAllowancesEmployeesProvidentFund
7,099,457567,929
4,243,491
7,609,915649,245
4,365,353
4,454,778505,229
3,145,749
5,106,305559,903
3,268,457
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
7. STAFF COSTS
TheAuthorityhasbeenexemptedfromtaxonallitsincome,otherthandividendincome,undertheIncomeTax(Exemption)(No.33)Order1997[PU(A)221/97],IncomeTax(Exemption)(Amendment)(No.2)Order2003[PU(A)198/2003]andpursuanttoSection127(3A)oftheIncomeTaxAct1967untiltheyearofassessment2011.On18February2010,MinistryofFinancegrantedafurtherextensionoftenyearsontheexemptionperioduntiltheyearofassessment2020.
Oneofitssubsidiaries,LabuanIBFCIncorporatedSdn.Bhd.hasbeengranted50%taxexemptiononitsstatutoryincomeunderSection127(3A)oftheIncomeTaxAct1967foryearofassessment2018.
Incometaxforothersubsidiariesiscalculatedatthestatutorytaxrateof24%(2017:24%)oftheestimatedassessableprofitfortheyear.
8. INCOME TAX CREDIT
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Statement of comprehensive income:Deferredtax(Note11):RelatingtooriginationoftemporarydifferencesOverprovisioninprioryear
(16,183)2,897
(3,042)266
--
--
(13,286) (2,776) - -
99ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
8. INCOME TAX CREDIT (CONTINUED) Reconciliationbetweentaxexpenseandaccountingsurplus
Thereconciliationbetweentaxexpenseandtheproductofaccountingsurplusmultipliedbytheapplicablecorporatetaxratefortheyearsended31December2018and2017areasfollows:
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Surplusbeforetax 6,370,546 2,974,172 5,144,294 1,980,114
TaxationatMalaysianstatutorytaxrateof24%(2017:24%)
EffectofchangesintaxrateEffectofincomenotsubjecttotaxEffectofexpensesnotdeductiblefortaxpurposes
Reversaloftemporarydifferencespreviously notrecognised
OverprovisionofdeferredtaxinprioryearDeferredtaxassetsnotrecognised
(1,528,931)-
2,893,484
(1,751,174)
378,098(7,660)2,897
(713,802)-
2,098,629
(1,669,740)
282,146266(275)
(1,234,631)-
1,234,631
-
---
(475,227)-
475,227
-
---
Taxcreditfortheyear (13,286) (2,776) - -
100 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
The Group
Leasehold landRM
BuildingsRM
Motor vehicles
RMComputers
RM
Furniture, fittings,office
equipment and
renovation RM
Work In Progress
RMTotal
RM
Cost
At1January2017
Additions
Disposals
Writeoff
Reclassification
442,000
-
-
-
-
84,506,001
-
-
-
-
1,272,711
-
(1,900)
-
-
7,074,804
353,254
(2,169)
(28,636)
18,529
10,830,336
565,687
(2,940,460)
(180,831)
-
18,529
2,860,904
-
-
(18,529)
104,144,381
3,779,845
(2,944,529)
(209,467)
-
At31December2017/
1January2018
Additions
Disposals
Writeoff
Reclassification
442,000
-
-
-
-
84,506,001
-
-
-
-
1,270,811
234,441
(240,778)
-
-
7,415,782
331,009
(1,483,561)
(10,697)
3,094,256
8,274,732
391,481
(213,887)
-
-
2,860,904
1,485,921
-
-
(3,094,256)
104,770,230
2,442,852
(1,938,226)
(10,697)
-
At31December2018 442,000 84,506,001 1,264,474 9,346,789 8,452,326 1,252,569 105,264,159
Accumulated depreciation
At1January2017
Chargefortheyear
Disposals
Writeoff
9,508
700
-
-
6,008,636
1,690,120
-
-
1,044,651
175,137
(1,900)
3,944,166
1,600,637
(2,169)
(28,406)
6,061,129
1,218,248
(2,820,715)
(180,830)
-
-
-
-
17,068,090
4,684,842
(2,824,784)
(209,236)
At31December2017/
1January2018
Chargefortheyear
Disposals
Writeoff
10,208
700
-
-
7,698,756
1,690,120
-
-
1,217,888
94,573
(240,778)
-
5,514,228
2,182,164
(1,483,534)
(6,904)
4,277,832
1,261,396
(188,938)
-
-
-
-
-
18,718,912
5,228,953
(1,913,250)
(6,904)
At31December2018 10,908 9,388,876 1,071,683 6,205,954 5,350,290 - 22,027,711
Carrying amounts
At31December2017 431,792 76,807,245 52,923 1,901,554 3,996,900 2,860,904 86,051,318
At31December2018 431,092 75,117,125 192,791 3,140,835 3,102,036 1,252,569 83,236,448
9. PROPERTY, PLANT AND EQUIPMENT
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
101ANNUAL REPORT 2018
The Authority
Leasehold landRM
BuildingsRM
Motor vehicles
RMComputers
RM
Furniture, fittings,office
equipment and
renovation RM
Work In Progress
RMTotal
RM
Cost
At1January2017
Additions
Disposals
Writeoff
Reclassification
442,000
-
-
-
-
84,506,001
-
-
-
-
761,925
-
-
-
-
6,610,772
353,254
-
(1,800)
18,529
6,018,393
135,888
(414,637)
(180,231)
-
18,529
2,860,904
-
(18,529)
98,357,620
3,350,046
(414,637)
(182,031)
-
At31December2017/
1January2018
Additions
Disposals
Writeoff
Reclassification
442,000
-
-
-
-
84,506,001
-
-
-
-
761,925
140,899
(240,778)
-
-
6,980,755
322,324
(1,457,643)
(8,198)
3,094,256
5,559,413
92,611
(213,887)
-
-
2,860,904
1,485,921
-
(3,094,256)
101,110,998
2,041,755
(1,912,308)
(8,198)
-
At31December2018 442,000 84,506,001 662,046 8,931,494 5,438,137 1,252,569 101,232,247
Accumulated depreciation
At1January2017
Chargefortheyear
Disposals
Writeoff
9,508
700
-
-
6,008,636
1,690,120
-
-
608,740
130,287
-
-
3,499,853
1,582,002
-
(1,800)
1,892,607
991,933
(294,892)
(180,231)
-
-
-
-
12,019,344
4,395,042
(294,892)
(182,031)
At31December2017/
1January2018
Chargefortheyear
Disposals
Writeoff
10,208
700
-
-
7,698,756
1,690,120
-
-
739,027
64,550
(240,778)
-
5,080,055
2,180,258
(1,457,644)
(4,406)
2,409,417
953,663
(188,938)
-
-
-
-
-
15,937,463
4,889,291
(1,887,360)
(4,406)
At31December2018 10,908 9,388,876 562,799 5,798,263 3,174,142 - 18,934,988
Carrying amounts
At31December2017 431,792 76,807,245 22,898 1,900,700 3,149,996 2,860,904 85,173,535
At31December2018 431,092 75,117,125 99,247 3,133,231 2,263,995 1,252,569 82,297,259
9. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
102 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
10. INVESTMENTS IN SUBSIDIARY
THE AUTHORITY
2018RM
2017RM
Unquotedshares,atcost 900,000 900,000
Proportion (%) of ownership interest
NameCountry of incorporation
Principal activities 2018 2017
Held by the Authority:
LabuanFSAIncorporatedSdn.Bhd.*
Held through LabuanFSA Incorporated Sdn. Bhd.:PristineEraSdn.Bhd.*
LabuanIBFCIncorporatedSdn.Bhd.*
Malaysia
Malaysia
Malaysia
Investmentholding
Provisionofeducationalservices
ProvisionofmarketingandpromotingservicesforLabuanInternationalBusinessandFinancialCentre
100
100
100
100
100
100
*ThefinancialstatementsofthesubsidiariesarenotauditedbytheAuditor-General.
103ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
11. DEFERRED TAX ASSETS
Thedeferredtaxassetsareinrespectofplantandequipment.
Deferredtaxassetshavenotbeenrecognisedinrespectofthefollowing:
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Atbeginningofyear
Recognisedinthestatementsofprofitorloss
6,405
(512)
9,181
(2,776)
-
-
-
-
Atendofyear 5,893 6,405 - -
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Unutilisedtaxlosses 1,512 1,498,448 - -
1,512 1,498,448 - -
Theunutilisedtaxlossesdonotexpireundercurrenttaxlegislation.DeferredtaxassetshavenotbeenrecognisedinrespectofthisitembecauseitisnotprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheGroupcanutilisethebenefitstherefrom.
104 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
CurrentFeesandtradereceivables
Less:Allowanceforimpairment
15,958,782
(3,128,832)
15,230,854
(3,092,233)
15,883,668
(3,062,739)
15,128,504
(3,031,566)
Feesandtradereceivables,net 12,829,950 12,138,621 12,820,929 12,096,938
Otherreceivables:
Amountduefromsubsidiary
Staffhousingloans
Staffvehicleloans
Staffadvances/sundrydebtors
Refundabledeposits
Interestreceivable
Prepayments
Others
-
62,052
75,032
179,809
702,846
1,984,511
101,989
200
-
160,724
90,798
98,449
648,044
1,924,465
33,494
200
4,033,971
62,052
75,032
58,768
433,752
1,984,511
101,019
-
4,010,712
160,724
90,798
45,268
376,152
1,924,465
27,769
-
Less:Allowanceforimpairment
3,106,439
-
2,956,174
-
6,749,105
-
6,635,888
-
3,106,439 2,956,174 6,749,105 6,635,888
15,936,389 15,094,795 19,570,034 18,732,826
Non-currentOtherreceivables:
Staffhousingloans
Staffvehicleloans
590,765
162,611
1,102,377
291,238
590,765
162,611
1,102,377
291,238
753,376 1,393,615 753,376 1,393,615
Totalfeesandotherreceivables
(currentandnon-current) 16,689,765 16,488,410 20,323,410 20,126,441
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
12. FEES AND RECEIVABLES
105ANNUAL REPORT 2018
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
NeitherpastduenorimpairedMorethan31dayspastduebut notimpaired
Impaired
12,829,950
9,0213,128,832
12,096,938
41,6833,092,233
12,820,929
-3,062,739
12,096,938
-3,031,566
15,967,803 15,230,854 15,883,668 15,128,504
COLLECTIVELY IMPAIRED INDIVIDUALLY IMPAIRED TOTAL
2018RM
2017RM
2018RM
2017RM
2018RM
2017RM
The Group Feesandtradereceivables-nominalamounts
Less:Allowanceforimpairment
1,365,982
(1,365,982)
1,419,584
(1,419,584)
1,762,850
(1,762,850)
1,672,649
(1,672,649)
3,128,832
(3,128,832)
3,092,233
(3,092,233)
- - - - - -
The AuthorityFeesandtradereceivables-nominalamounts
Less:Allowanceforimpairment
1,299,889
(1,299,889)
1,358,917
(1,358,917)
1,762,850
(1,762,850)
1,672,649
(1,672,649)
3,062,739
(3,062,739)
3,031,566
(3,031,566)
- - - - - -
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
12. FEES AND RECEIVABLES (CONTINUED) a) Fees and Trade Receivables Aginganalysisoffeesandtradereceivables
TheageinganalysisoftheGroupandtheAuthorityfeesandtradereceivablesareasfollows:
Receivablesthatareneitherpastduenorimpaired
FeesandtradereceivablesthatareneitherpastduenorimpairedarecreditworthydebtorswithgoodpaymentrecordswiththeGroupandtheAuthority.TheentireGroup’sandtheAuthority’sfeesandtradereceivablesarisefromcustomerswithmorethanfouryearsofexperiencewiththeAuthorityandlosseshaveoccurredinfrequently.
NoneoftheGroup’sandtheAuthority’sfeesandtradereceivablesthatareneitherpastduenorimpairedhasbeenrenegotiatedduringthefinancialyear.
Receivablesthatarepastduebutnotimpaired
TheGrouphasfeesandtradereceivablesamountingtoRM9,021(2017:RM41,683)thatarepastdueatthereportingdatebutnotimpaired.
Receivablesthatareimpaired
TheGroup’sandtheAuthority’sfeesandtradereceivablesthatareimpairedatthereportingdateandthemovementofallowanceaccountsusedtorecordtheimpairmentareasfollows:
106 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
At1January
Impairmentlossesrecognised
Impairmentlossesreversed
3,092,233
3,201,422
(3,170,249)
2,809,811
3,729,607
(3,447,185)
3,031,566
3,201,422
(3,170,249)
2,761,350
3,715,566
(3,445,350)
At31December 3,123,406 3,092,233 3,062,739 3,031,566
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
12. FEES AND RECEIVABLES (CONTINUED) a) Fees and Trade Receivables (Continued)
Movementinallowanceaccount
Feesandtradereceivablesthatareindividuallydeterminedtobeimpairedatthereportingdaterelatetodebtorsthathavedefaultedonpayments.
b) Staff housing and vehicle loans
Staffhousingandvehicleloansarerepayableoveramaximumperiodof30yearsand9yearsrespectively(2017:30yearsand9yearrespectively).Theinterestchargedontheseloansrangesfrom2%to3%(2017:2%to3%)perannum.
c) Amount due from subsidiary
Theamountduefromsubsidiaryisnon-tradeinnature,interestfreeandrepayableondemand.
13. INVENTORIES
Duringtheyear,theamountofinventoriesrecognisedasanexpenseinthestatementsofprofitorlossoftheGroupwasRM318,776(2017:RM245,255).
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Atcost:
Booksandstationeries
Uniforms,fabricsandt-shirts
110,265
208,511
171,663
73,592
-
-
-
-
Inventorieswrittenoff 318,776
-
245,255
-
-
-
-
-
318,776 245,255 - -
107ANNUAL REPORT 2018
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Cashonhandandatbanks
Fixeddepositswithlicensedbanks
14,341,268
59,000,000
8,967,574
59,000,000
4,495,305
56,000,000
4,082,152
59,000,000
Cashandbankbalances 73,341,268 67,967,574 60,495,305 63,082,152
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Cashatbanks:
UnitedStatesDollar
HongKongDollar
752,797
-
1,297,417
126,439
752,797
-
1,297,417
-
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
14. CASH AND BANK BALANCES
15. DEFERRED INCOME
Deferredincomecomprisesthefollowings:
Cashatbanksearnsinterestatfloatingratesbasedondailybankdepositrates.MoneyatcallwithlicensedbanksismadeforvaryingperiodofonedaydependingontheimmediatecashrequirementoftheGroupandoftheAuthority. Theweightedaverageeffectiveinterestratesasat31December2018fortheGroupandtheAuthoritywere4.10%(2017:4.00%)perannumwithmaturityperiodof30to365days(2017:30to365days).
Foreigncurrencyexposureprofileforcashandbankbalancesisasfollows:
Duringtheyear,theamountofgovernmentgrantrecognisedasanincomeinthestatementsofprofitorlossoftheGroupandoftheAuthorityisRM2,409,737andRM2,053,668(2017:RM2,065,880andRM1,963,480)respectively.
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Grantrelatedtoincome (a)
Grantrelatedtoassets (b)
1,319,172
73,688,654
1,967,059
75,365,014
526,269
73,688,654
903,577
75,365,014
75,007,826 77,332,073 74,214,923 76,268,591
108 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Grantrelatedtoincome (a)
Grantrelatedtoassets (b)
1,319,172
73,688,654
1,967,059
75,365,014
526,269
73,688,654
903,577
75,365,014
75,007,826 77,332,073 74,214,923 76,268,591
15. DEFERRED INCOME (CONTINUED)
Theexpectedutilisationofthegrantsasat31December2018areasfollows:
a) Grant related to income
ThegrantrelatedtoincomeisrecognisedintheprofitorlossonthebasisoftheexpensesincurredrelatingtoprojectsundertakenbytheGroupandtheAuthorityundertheTenthMalaysiaPlan.
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Within12months
After12months
2,995,532
72,012,294
3,643,419
73,688,654
2,202,629
72,012,294
2,579,937
73,688,654
75,007,826 77,332,073 74,214,923 76,268,591
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
At1JanuaryReceivedduringthefinancialyearLess:Recognisedinprofitorloss
1,967,059-
(647,887)
2,356,579-
(389,520)
903,577-
(377,308)
1,190,697-
(287,120)
At31December 1,319,172 1,967,059 526,269 903,577
109ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
15. DEFERRED INCOME (CONTINUED) b) Grant related to assets
16. GOVERNMENT LOANS
GovernmentloansrepresentthebalanceofRM3millionoutofaRM6millionloanandaRM10millionloanobtainedin1996and2000respectivelyfromBankNegaraMalaysia.Theloansrepresentgovernmentassistancesandareunsecuredandinterest-free.Thebalanceofthefirstloanandthesecondloanarerepayableuntilyear2020withstaggeredrepaymentterm.
ThematuritiesoftheGovernmentloansasatreportingdateareasfollows:
THE GROUP AND THE AUTHORITY
2018RM
2017RM
Within12monthsAfter12months
2,000,0002,000,000
1,500,0004,000,000
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Grant related to assets:At1JanuaryReceivedduringthefinancialyear
82,753,798-
82,753,798-
82,753,798-
82,753,798-
At31December 82,753,798 82,753,798 82,753,798 82,753,798
Cumulative credits:At1JanuaryCreditedtostatementsofprofitorlossduringtheyear
(7,388,784)
(1,676,360)
(5,712,424)
(1,676,360)
(7,388,784)
(1,676,360)
(5,712,424)
(1,676,360)
At31December (9,065,144) (7,388,784) (9,065,144) (7,388,784)
Net carrying amount:CurrentNon-current
1,676,36072,012,294
1,676,36073,688,654
1,676,36072,012,294
1,676,36073,688,654
73,688,654 75,365,014 73,688,654 75,365,014
110 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
17. OTHER PAYABLES
18. LEASE COMMITMENTS
Asoftheendofthefinancialperiod,leasecommitmentinrespectofrentalofpremiseisasfollows:
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Amountduetoasubsidiary
Feesreceivedinadvance
Refundabledeposits
Retentionpayables
Accruals
Others
-
8,185,753
1,079,503
1,123,073
1,760,234
5,629,494
-
11,037,558
1,056,986
1,120,038
1,814,873
2,448,427
-
8,185,753
602,200
1,123,073
1,388,518
4,609,029
7,000,000
11,037,558
602,200
1,120,038
1,471,542
1,534,015
Totalotherpayables 17,778,057 17,477,882 15,908,573 22,765,353
a) Amount due to a subsidiary
Theamountduetoasubsidiaryisnon-tradeinnature,interest-freeandpayableondemand.
b) Fees received in advance
ThesecompriseannualandlicensefeespaidinadvancebyLabuanbanks,LabuaninsurancecompaniesandotherLabuanlicensedentities.
c) Refundable deposits
TheserepresentsecuritydepositspaidbytrustcompaniesinaccordancewiththeprovisionsoftheLabuanTrustCompaniesAct1990andothersecuritydeposits.
d) Others
Thesecompriseamountsoutstandingforongoingcosts.
THE GROUP AND THE AUTHORITY
2018RM
2017RM
Financialyearended31December:20182019
1,682,8211,660,334
1,682,821-
3,343,155 1,682,821
111ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
19. RELATED PARTIES DISCLOSURES a) Services rendered
Inadditiontotherelatedpartyinformationdisclosedelsewhereinthefinancialstatements,thefollowingsignificanttransactionsbetweentheGroupandtheAuthorityandrelatedpartiestookplaceattermsagreedbetweenthepartiesduringthefinancialyear:
Forthepurposesofthesefinancialstatements,partiesareconsideredtoberelatedtotheGroupandtheAuthorityiftheGroupandtheAuthorityhastheability,directlyorindirectly,tocontrolthepartyorexercisesignificantinfluenceoverthepartyinmakingfinancialandoperatingdecisions,orviceversa,orwheretheAuthorityandthepartyaresubjecttocommoncontrolorcommonsignificantinfluence.
b) Transactions with key management personnel
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
RentalincomereceivedfromasubsidiaryTuitionfeespaidtoasubsidiaryContributiontoLabuanFinancialServicesAuthorityStaffWelfareFund
MarketingfeespaidtoasubsidiaryGranttoasubsidiary
--
(250,000)--
--
(350,000)--
180,000(235,503)
(250,000)(7,500,000)(6,900,000)
180,000(318,019)
(350,000)(7,500,000)(6,750,000)
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
SalariesAllowancesEmployeeProvidentFund
7,099,457567,929
1,110,930
7,609,915649,245
1,335,731
4,454,778505,229878,444
5,106,305559,903
1,027,097
8,778,316 9,594,891 5,838,451 6,693,305
Outstandingstaffloansowingbykeymanagementpersonnel:
StaffhousingloansStaffvehicleloans
--
251,548-
--
251,548-
- 251,548 - 251,548
112 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
20. FINANCIAL INSTRUMENTS TheoperationsoftheGroupandtheAuthorityaresubjecttoavarietyoffinancialrisks,includingcreditriskand
liquidityrisk.TheGroupandtheAuthorityhasagreedtoformulateafinancialriskmanagementframeworkwiththeprincipalobjectivetominimisetheGroupandtheAuthority’sexposuretorisksand/orcostsassociatedwiththefinancing,investingandoperatingactivitiesoftheGroupandtheAuthority.
VariousriskmanagementpoliciesaremadeandapprovedbytheGroupandtheAuthorityforobservationintheday-to-dayoperationsforthecontrollingandmanagementoftherisksassociatedwithfinancialinstruments.
a) Credit risk
ThefinancialinstrumentswhichpotentiallysubjecttheGroupandtheAuthoritytocreditriskarefeereceivables.ConcentrationofcreditriskwithrespecttofeereceivablesislimitedduetoalargenumberofLabuancompaniesinvariousindustries.TheAuthorityisoftheopinionthattheriskofincurringmateriallossesinexcessoftheallowanceforimpairmentlossmadeatyearendrelatedtothiscreditriskisremote.
b) Interest risk
InterestrateriskistheriskthatthefairvalueorfuturecashflowsoftheAuthority’sfinancialinstrumentswillfluctuatebecauseofchangesinmarketinterestrates.ThemanagementisoftheopinionthattheAuthority’sexposuretointerestrateriskasof31December2017isminimal.
c) Foreign currency risk
Foreigncurrencyriskistheriskthatthevalueofafinancialinstrumentwillfluctuateduetochangesinforeignexchangerates.
TheGroupandtheAuthority’sexposuretoforeigncurrencyriskarisesprimarilyfromitscashandbankbalancesdenominatedinforeigncurrencies.TheGroupandAuthorityincurscurrencyriskontransactionsthataredenominatedinacurrencyotherthantheRinggitMalaysia.ManagementbelievesthatthereisminimalriskofsignificantlossesduetoexchangeratefluctuationsandconsequentlytheAuthoritydoesnothedgeitsforeigncurrencyexposure.
113ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
Theabovesensitivityanalysisisunrepresentativeoftheinherentforeignexchangeriskbecausetheperiodendexposuredoesnotreflecttheexposureduringtheperiod.
d) Liquidity risk
TheGroupandAuthoritypracticeliquidityriskmanagementtominimisethemismatchoffinancialassetsandliabilitiesandtomaintainsufficientcreditfacilitiesforcontingentfundingrequirementofworkingcapital.
Analysis of financial instruments by remaining contractual maturities
ThetablebelowsummarisesthematurityprofileoftheGroup’sandtheAuthority’sfinancialassetsandfinancialliabilitiesatthereportingdatebasedoncontractualundiscountedamount.
20. FINANCIAL INSTRUMENTS (CONTINUED)
Foreigncurrencysensitivityanalysis
ThefollowingtabledetailstheGroupandAuthority’ssensitivitytoa10%increaseanddecreaseinRinggitMalaysia(RM)againsttherelevantforeigncurrencies.10%isthesensitivityrateusedwhenreportingforeigncurrencyriskinternallytokeymanagementpersonnelandrepresentsmanagement’sassessmentofthereasonablypossiblechangeinforeignexchangerates.Thesensitivityanalysisincludesonlyoutstandingforeigncurrencydenominatedmonetaryitemsandadjuststheirtranslationattheperiodendfora10%changeinforeigncurrencyrates.ApositivenumberbelowindicatesanincreaseinprofitwheretheRMstrengthens10%againsttherelevantcurrency.Fora10%weakeningoftheRMagainsttherelevantcurrency,therewouldbeacomparableimpactontheprofit,andthebalancesbelowwouldbenegative.
Impactonprofitorloss
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
UnitedStatesDollarHongKongDollar
75,280-
142,43012,644
75,280-
129,74712,644
114 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
20. FINANCIAL INSTRUMENTS (CONTINUED)
THE GROUP
On demandor withinone year
RM
One yearTo
fiveyearsRM
OverfiveyearsRM
TotalRM
2018
Non-derivativefinancialassets: Feesandotherreceivables Cashandbankbalances
15,834,39976,311,589
678,081-
551,367-
17,063,84776,311,589
Totalundiscountednon- derivativefinancialassets 92,145,988 678,081 551,367 93,375,436
Non-derivativefinancialliabilities: Governmentloans Otherpayables
2,000,0008,510,026
2,000,000-
--
4,000,0008,510,026
Totalundiscountednon- derivativefinancialliabilities 10,510,026 2,000,000 - 12,510,026
Totalnetundiscountednon-derivativefinancial assets/(liabilities) 81,635,962 (1,321,919) 551,367 80,865,410
2017
Non-derivativefinancialassets: Feesandotherreceivables Cashandbankbalances
15,061,30170,852,798
1,180,120-
1,409,110-
17,650,53170,852,798
Totalundiscountednon- derivativefinancialassets 85,914,099 1,180,120 1,409,110 88,503,329
Non-derivativefinancialliabilities: GovernmentloansOtherpayables
1,500,0006,440,324
4,000,000-
--
5,500,0006,440,324
Totalundiscountednon- derivativefinancialliabilities 7,940,324 4,000,000 - 11,940,324
Totalnetundiscountednon- derivativefinancial assets/(liabilities) 77,973,775 (2,819,880) 1,409,110 76,563,005
115ANNUAL REPORT 2018
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
20. FINANCIAL INSTRUMENTS (CONTINUED)
THE AUTHORITY
On demandor withinone year
RM
One yearTo
fiveyearsRM
OverfiveyearsRM
TotalRM
2018
Non-derivativefinancialassets: Feesandotherreceivables Cashandbankbalances
19,469,01462,945,365
678,081-
551,367-
20,698,46262,945,365
Totalundiscountednon- derivativefinancialassets 82,414,379 678,081 551,367 83,643,827
Non-derivativefinancialliabilities: Governmentloans Otherpayables
2,000,0007,722,820
2,000,000-
--
4,000,0007,722,820
Totalundiscountednon- derivativefinancialliabilities 9,722,820 2,000,000 - 11,722,820
Totalnetundiscountednon-derivativefinancial assets/(liabilities) 72,691,559 (1,321,919) 551,367 71,921,007
2017
Non-derivativefinancialassets: Feesandotherreceivables Cashandbankbalances
18,705,05765,758,947
1,180,120-
1,409,110-
21,294,28765,758,947
Totalundiscountednon- derivativefinancialassets 84,464,004 1,180,120 1,409,110 87,053,234
Non-derivativefinancialliabilities: Governmentloans Otherpayables
1,500,00011,727,795
4,000,000-
--
5,500,00011,727,795
Totalundiscountednon- derivativefinancialliabilities 13,227,795 4,000,000 - 17,227,795
Totalnetundiscountednon- derivativefinancial assets/(liabilities) 71,236,209 (2,819,880) 1,409,110 69,825,439
116 LABUAN INTERNATIONAL BUSINESS ANDFINANCIAL CENTRE
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
20. FINANCIAL INSTRUMENTS (CONTINUED)
d) Liquidity risk (Continued)
Fair Values of Financial Assets and Financial Liabilities
Thecarryingamountsofshort-termfinancialassetsandfinancialliabilitiesrecognisedatamortisedcostinthefinancialstatementsapproximatetheirrespectivefairvaluesduetotherelativelyshort-termmaturityofthesefinancialinstruments.
Loansandreceivablesismeasuredsubsequenttoinitialrecognitionatamortisedcostusingtheeffectiveinterestratemethod(EIR),lessimpairment.
Thefairvalueandsignificantassumptionsusedindeterminingthefairvalueoffeesandreceivablesclassifiedasloansandreceivablesasfollows:
Fair value measurements recognised in the statement of financial position
Thefollowingtableprovidesananalysisoffinancialinstrumentsthataremeasuredsubsequenttoinitialrecognitionatfairvalue,groupedintoLevels1to3basedonthedegreetowhichthefairvalueisobservable.
• Level1fairvaluemeasurementsarethosederivedfromquotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.
• Level2fairvaluemeasurementsarethosederivedfrominputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectly(i.e.asprices)orindirectly(i.e.derivedfromprices).
• Level3fairvaluemeasurementsarethosederivedfromvaluationtechniquesthatincludeinputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinputs).
TherewerenomovementsintheLevel1andLevel3fairvaluemeasurementsduringthefinancialyear.
THE GROUP AND THE AUTHORITY
2018RM
2017RM
LoansandreceivablescarriedatfairvalueStaffhousingandvehicleloans 890,460 1,645,137
THE GROUP AND THE AUTHORITY
Level 1RM
Level 2RM
Level 3RM
Level 4RM
2018
Staffhousingandvehicleloans - 890,460 - 890,460
2017
Staffhousingandvehicleloans - 1,645,137 - 1,645,137
117ANNUAL REPORT 2018
22. AUTHORISATION OF FINANCIAL STATEMENTS FOR ISSUE
ThefinancialstatementswereauthorisedforissuebytheMembersoftheAuthorityon15April2019.
21. CASH AND CASH EQUIVALENTS
NOTES TO THE FINANCIAL STATEMENTSFORTHEYEARENDED31DECEMBER2018
THE GROUP THE AUTHORITY
2018RM
2017RM
2018RM
2017RM
Cashonhandandatbank
Fixeddepositsplacedwithlicensedbanks
14,341,268
59,000,000
8,967,574
59,000,000
4,495,305
56,000,000
4,082,152
59,000,000
Less:Fixeddepositswithmaturityperiodof
morethan3months
73,341,268
(56,000,000)
67,967,574
(55,000,000)
60,495,305
(56,000,000)
63,082,152
(55,000,000)
Cashandcashequivalentsforstatementsof
cashflowspurposes 14,341,268 12,967,574 4,495,305 8,082,152
Thispagehasbeenintentionallyleftblank.
119ANNUAL REPORT 2018
Philippines
South Korea
JapanChina
Hong Kong
Australia
Indonesia
Singapore
VietnamIndia
Thailand