Mutual Evaluation Report of Malaysia September 2015 - Way forward for Labuan IBFC by Iskandar Mohd Nuli Senior Director, Supervision & Legal Department October 7, 2015 at Grand Dorsett Hotel Labuan
Introduction Established on 15th February 1996 Statutory body responsible for the development and administration of Labuan IBFC. Mandates Administer, enforce, carry out and give effect to the provision of the legislations. To regulate, supervise and ensure compliance all Labuan relevant laws of Labuan IBFC. 2
Chairman s statement In preserving Labuan IBFC as a reputable and credible business and financial center which is able to sustain the trust and confidence of investors, will also continue to provide conductive business environment that is supported by sound and effective regulatory and supervisory regime. Tan Sri Dato Sri Dr Zeti Akhtar Aziz Governor of BNM Source: s Annual Report 2014 3
Assessments on Labuan IBFC by International Standard Setting Bodies Assessments International Standard Setting Bodies Jurisdictions The Financial Sector Assessment Program (FSAP) Conducted in 2012 Conducted by: A joint program of the International Monetary Fund (IMF) and the World Bank (WB) Methodologies used: Core Principles mooted by BIS, IAIS and IOSCO Malaysia (including Labuan) The Global Forum on Transparency and Exchange Conducted in 2011 Conducted by: The Organisation for Economic Cooperation and Development (OECD) Scope: Transparency on tax information and information sharing Methodologies used: 2002 OECD Model Agreement on Exchange of Information on Tax Matters. Malaysia (including Labuan) 4
Assessments on Labuan IBFC by International Standard Setting Bodies Assessments International Standard Setting Bodies Jurisdictions The Group of International Finance Centre Supervisors (GIFCS) Conducted in 2012 Adoption of international regulatory standards especially in the banking, fiduciary and against Anti money laundering and the financing of terrorism (AML/CFT) arena. Labuan Mutual Evaluation Exercise Conducted in 2001, 2007 & 2014 Conducted by The Asia/Pacific Group on Money Laundering (APG) The Scope: AML/CFT Framework of Malaysia Malaysia (including Labuan) Note : aspires to comply with the international standards and best practices! 5
2014 Mutual Evaluation Exercise of Malaysia (including Labuan IBFC) Conducted by the APG. Mutual Evaluation of Malaysia report was published in September 2015. Parameters used : FATF 40 Recommendations and FATF Methodology on 11 Immediate Outcomes adopted in 2013 The assessment combine the technical compliance of the FATF Recommendations; and the effectiveness of that AML/CFT regime. The report is published at http://www.fatf-gafi.org/ 6
General Findings Related to Labuan IBFC (1) Risk Assessments Different understanding of risk among players National Risk Assessments (NRA) findings not integrated fully within internal policies Labuan Risk Assessments (LRAs) not fully assessed By whom Labuan IBFC players Expected improvements Improve understanding of risk (awareness, outreach, dialogue) Streamlining of policies (enhance guidelines, provide technical notes) More consultation with reporting institution (RI) and associations for NRA and LRA Strengthen the processes to disseminate risk findings To participate actively with NRA/LRA Surveys, engagement sessions, dialogues Include risk findings into internal polices 7
General Findings Related to Labuan IBFC (2) Information Sharing & International Corporation Information shared with other authorities are more than information requests Information on Beneficial Ownership (BO) need to be accurate / up-to-date and easily accessed to facilitate information sharing has minor limitation of sharing information related to supervisory materials due to: Outside of investigation Not involving home supervisors Not part of existing Memorandum of Understanding (MoU) By whom Labuan IBFC players Expected Improvements Regularly conduct examination to check implementation of CDDs Review laws to require trust companies to have accurate and updated information on BO and also to address the limitation of information sharing More request information for licensing / intelligence / investigation purposes Compliant with record keeping requirements as per Directives BO information need to be accurate, verified and updated - Directive Easy access to information and extraction by enhancing the usage of MIS 8
General Findings Related to Labuan IBFC (3) Suspicious Transaction Report (STRs) Low submission of STRs by Labuan players No reporting on attempted transactions By whom Labuan IBFC players Expected Improvements Create awareness on the obligation of reporting Sharing more on typologies and emerging trends of financial crimes on Money Laundering (ML) Provide guidance and red flags to support implementation of preventative measures and STRs reporting Report STRs (including attempted) - for analysis typologies purposes Provide awareness and training Ensure conduct on-going monitoring / enhanced Know-Your- Customers (KYCs) 9
General Findings Related to Labuan IBFC (4) Transparency on BO of Legal Person and Legal Arrangement (LPLA) Not comprehensive assessment on risks Gaps information held by trust companies and Available fines for breaches of various obligation are not proportionate and dissuasive By whom Labuan IBFC players Expected Improvements Review laws to increase penalties and invoke reporting obligation of change of BO Intensify on-site and off-site monitoring insure BO of LPLA can be extract in timely manner To ensure the implementation of CDD on BO in order to have accurate and up to date information To strengthen internal AMLCFT programme Policies & Procedures, Board and Senior Management oversight, appoint fit & proper Compliance officer etc 10
General Findings Related to Labuan IBFC (5) Sanctions of Terrorism Financing (TF) & Proliferations Financing (PF) The sanction imposed for money laundering (ML) have been low Investigation made on TF, but no prosecution shows ineffectiveness Malaysia focus on security intelligence approach prevention rather that action against TF financiers Targeted approach to educate NPO to prevent TF and PF By whom Labuan IBFC players Expected Improvements Sharing of information with other agencies (NPO) Create more awareness / outreach programs on TF and PF Strengthen implementation of targeted financial sanctions (TFS) Strengthen on-boarding and on going monitoring screening on customers Timely submission to on UNSCR 1267 and UNSCR 1373 on any matching names of individuals or entities 11
General Findings Related to Labuan IBFC (6) Supervision and Enforcement Supervision is more advanced than RI Implementation of CDD BO/PEPs Understanding of risk based approach inadequate, fail to mitigate the ML/TF risk do risk profiling and assess higher risk customers, PEPs, High Risk Jurisdictions (HRJ) etc Absence of Enhance Due Diligence (EDD) and trigger parameters Supervisory activity relatively low compared to domestics The position of FIs and DNFBPs in Labuan is weaker than in Malaysia. By whom Labuan IBFC players Expected Improvements Intensify on-site and off-site monitoring on AMLCFT compliance Increase penalty of non compliance Enforce penalty of non compliance More engagements with reporting institutions Ensure that the appointed Compliance Officer is fit and proper and knowledgeable Ensure implementation of AMLCFT policies, procedures and controls up to standard and applied in practice 12
Conclusion s Aspiration shall ensure a sound, stable and dynamic Labuan International Business and Financial Centre for Asia, by committing to the highest principles and its core values. (Mission Statement) cannot work alone toward achieving the above. Regulator and industry players need to work hand in hand and play their respective roles toward conforming to international standards and best practices. This is to preserve Labuan IBFC as a reputable and credible business and financial center which is able to sustain the trust and confidence of investors. Carry on enforcement actions using various available penalties and sanctions is the last thing that Labuan FA would do against any non-compliance. 13