Regulatory Expectations on Offshore Banks in Maintaining An Effective AML/CFT Framework. Adi Akmal Ayob Labuan FSA

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1 Regulatory Expectations on Offshore Banks in Maintaining An Effective AML/CFT Framework Adi Akmal Ayob Labuan FSA

2 AGENDA Introduction of Labuan FSA Labuan IBFC services & products Laws administered Applicable legal framework Regulatory effectiveness

3 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

4 LFSA: ONE STOP REGULATORY AGENCY CCM Central Bank of Malaysia SC Regulation and Supervision Since 1996 Prior to 1996 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 BNM/BIS SC/IOSCO IMF/OGBS IAIS/OGIS FATF + 40 OECD 4

5 LABUAN IBFC: SERVICES AND PRODUCTS Labuan Banking Labuan Insurance Labuan Trust Capital Market Labuan Entities Commercial Banking - Loans - Deposits - Leasing - Custodian - Guarantee Investment Banking Private Banking Life General Brokers Managers Underwriters Captives Re-Insurers Trustee Administrator Secretarial - Resident Secretary - Resident Director Company Management 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.. and Islamic Financial Services Opportunities 5

6 LFSA: ADMINISTER/ENFORCE LEGISLATION Labuan FSA Act 1996 Guidelines (Including Islamic) IBFC Regulatory Authority Acts of General Application 1. AMLATFA Mutual Assistance in Criminal Matters Act 2002 Labuan FSA Inland Revenue Board 1. Labuan Companies Act Labuan Financial Services & Securities Act Labuan Trusts Act Labuan Limited Partnerships & Limited Liability Partnership Act Labuan Foundation Act Labuan Islamic Financial Services & Securities Act Labuan Business Activity Tax Act Exemption Order of Income Tax Act Exemption order of Stamp Act

7 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 7

8 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

9 EFFECTIVE REGULATORY COMPLIANCE ON LABUAN BASED FINANCIAL INSTITUTIONS (2) 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 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. 9

10 EFFECTIVE REGULATORY COMPLIANCE ON LABUAN BASED FINANCIAL INSTITUTIONS (3) 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. 10

11 EFFECTIVE REGULATORY COMPLIANCE ON LABUAN BASED FINANCIAL INSTITUTIONS (4) 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. 11

12 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 12

13 THANK YOU Adi Akmar Ayob Head, AML & Investigation Unit LFSA /