Regulatory Expectations on Offshore Banks in

Maintaining An Effective AML/CFT Framework

Adi Akmal Ayob

Labuan FSA

AGENDA

• Introduction of Labuan FSA

• Labuan IBFC services & products

• Laws administered

• Applicable legal framework

• Regulatory effectiveness

LABUAN FINANCIAL SERVCIES AUTHORITY

• Established under the LFSA Act 1996

• ‘As one-stop’ agency

• As central regulatory, supervisory and enforcement authority of IBF services industry in Labuan

• Members of international regulatory and supervisory bodies

• Promote & develop Labuan as an IBFC

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LFSA: ONE STOP REGULATORY AGENCY

CCMCCM Central Central

Bank of Bank of

MalaysiaMalaysia SCSC

Incorporate/ Register offshore companies

License and supervise Trust and Management Companies

License and supervise banks

License and supervise insurance and insurance related companies

License and supervise fund managers

Register funds

Approval of bonds issuance

Regulate LFX

Regulation Regulation andand

Supervision Supervision

BNM/BIS

SC/IOSCO

IMF/OGBS

IAIS/OGIS

FATF + 40

OECD

Sin

ce 1

99

6

Pri

or

to 1

99

6

5

Labuan Entities

….. and Islamic Financial Services Opportunities

LABUAN IBFC: SERVICES AND PRODUCTS

•Commercial Banking

- Loans - Deposits - Leasing - Custodian - Guarantee •Investment

Banking •Private Banking

Capital

Market

•Labuan International Financial Exchange (LFX)

- Listing - Trading

•Fund Management

- Custodian - Fund

Administrator •Mutual Funds

- Private Funds - Public Funds

•Registration of Companies

- Foreign incorporated

- Locally incorporated

•Type of Companies - Limited by

Shares - Limited by

Guarantee - PCC - Labuan Limited

Partnership & Limited liability Partnership

-General -Professional -Project

•Life •General •Brokers •Managers •Underwriters •Captives •Re-Insurers

•Trustee •Administrator •Secretarial

- Resident Secretary

- Resident Director

•Company Management

Labuan Trust

Labuan Insurance

Labuan

Banking

6

LFSA: ADMINISTER/ENFORCE LEGISLATION

Labuan FSA Act 1996

IBFC Regulatory Authority

1.1. Labuan Labuan Business Business Activity Tax Activity Tax Act 1990 Act 1990

2.2. Exemption Order of Income Exemption Order of Income Tax Act 1967Tax Act 1967

3.3. Exemption order of Stamp Exemption order of Stamp Act 1949Act 1949

1. Labuan Companies Act 2010

2. Labuan Financial Services & Securities Act 2010

3. Labuan Trusts Act 1996

4. Labuan Limited Partnerships & Limited Liability Partnership Act 2010

5. Labuan Foundation Act 2010

6. Labuan Islamic Financial Services & Securities Act 2010

Labuan FSA

Guidelines (Including Islamic)

Inland Revenue Board

Acts of General Application

1. AMLATFA 2001

2. Mutual Assistance in Criminal Matters Act 2002

AML/CFT laws in Labuan

• Anti Money Laundering & Anti Terrorism

Financing Act 2001

• Labuan FSA Standard Guidelines on

AML/CFT

• Sectorial 1, 2 & 3 Guidelines on AML/CFT

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EFFECTIVE REGULATORY COMPLIANCE ON LABUAN BASED FINANCIAL INSTITUTIONS (1)

• Regulatory & Supervisory

– Include an explicit obligation to report transaction suspected of being linked to TF in situation other than when the financing is the proceeds of an unlawful activity.

– Section 98 of the Labuan Financial Services and Securities Act 2010 prohibits any cash transactions within Labuan IBFC thus reducing risks of ML/TF and resulting in a low level of STR reporting.

(A fine of RM10M or imprisonment of up to 5 years or both, subject to conviction if its found guilty.)

8

• Address the legal constraint on Labuan FSA to share customer information with foreign counterparts/ Investigation-enforcement powers.

• The Offshore Banking Act 1990 Offshore Insurance Act 1990 and Labuan Offshore Securities Industry Act 1998 has since been repealed and replaced by the new Labuan Financial Services and Securities Act 2010.

• The new laws includes the process and operation of all Labuan licensed institutions which includes Labuan banks and Labuan insurance.

• The limitations under the previous laws have been resolved by giving the Labuan FSA the full authority in obtaining the customer information including beneficiary ownership of a Labuan entity.

• With regard to the secrecy provisions, all such provision has been rationalised to facilitate the exchange of information and international cooperation in accordance with section 28B of LFSA Act.

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EFFECTIVE REGULATORY COMPLIANCE ON LABUAN BASED FINANCIAL INSTITUTIONS (2)

• Explore the generally low level of reporting including exercising powers for on-site examinations.

– Examinations on banks, insurance related institutions and trust companies in Labuan.

– Based on the risk profile of the institutions. All AML/CFT related initiatives undertaken by the reporting institutions, including the adequacy of the operating procedures for STR reporting are assessed under the adequacy of risk management and control function (RMCF), within the spectrum of operational and reputational risk.

– The element of RMCF would be one of the main components considered in the overall risk rating of the institutions which would determine the level of supervisory intervention.

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EFFECTIVE REGULATORY COMPLIANCE ON LABUAN BASED FINANCIAL INSTITUTIONS (3)

• Continue outreach and inspection programme to assist institutions to understand the STR obligation.

• Conduct awareness programme to all compliance officers in the Labuan International Business and Financial Centre (IBFC).

• Since April 2010, Labuan associations has been introduce to the Financial Intelligence Network System (FINS) for direct online reporting of STRs.

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EFFECTIVE REGULATORY COMPLIANCE ON LABUAN BASED FINANCIAL INSTITUTIONS (4)

FUTURE DEVELOPMENT

• Amendments to include new provisions of

the Labuan legislation in AMLATFA;

• Continuous review for changes/enhancement

on the AML/CFT Standard Guidelines (incl.

Sectoral 1,2 &3)

• Continuous awareness program and capacity

building to officers of Labuan FI

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THANK YOU

• Adi Akmar Ayob

• Head, AML & Investigation Unit LFSA

• adi@labuanfsa.gov.my / adiayob@yahoo.com

• 087-591200