Labuan Offshore Financial Services Authority Annual Report 2008
Total Page:16
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Strengthening Business Potentials Annual Report 08 Guided by our strategic focus on growth, productivity and responsibility, we will continue to synergise our strengths in building and strengthening our business potentials - all with the aim of achieving sustainable progress. Banking Insurance Trusteeship Business Registration Islamic Finance Leasing Business Process Outsourcing Listing of Financial Instruments Mission Statement LOFSA shall act as a one stop agency to realise the Government’s vision to develop Labuan as a premier IBFC by ensuring the highest level of integrity, commitment and professionalism. Contents 6 Chairman’s Statement 12 Corporate Profi le 32 Statement of Corporate Governance 40 Business Activities of Labuan IBFC 64 Supervision of Labuan Financial Institutions 70 Developmental Review 84 Financial Statements 118 Appendices Chairman’s Statement LOFSA remains committed to its long- term goals in maintaining Labuan IBFC as a preferred international business and fi nancial centre of high integrity and repute 6 LOFSA ANNUAL REPORT 2008 After a period of exceptional growth, the world economy While the growth prospects in the near term are expected has now entered a period of instability and uncertainty as to be moderate as a result of global crisis, the Labuan the spill over effects of the fi nancial crisis in the advanced IBFC continues to offer attractive opportunities as an economies has far-reaching implications on the rest of the international fi nancial centre for businesses wishing to world. The fi nancial reforms and capacity building initiatives expand or consolidate their positions. Labuan is also being undertaken in Asia have, however, well positioned the strengthened further through more facilitative measures to region to withstand the challenges arising from the global promote investment holding company business, captive fi nancial turmoil. While Asia may experience slower growth insurance, private wealth management and trusts and or even economic contraction in 2009, the expectation is foundations. The focus on these sectors is to provide that the region will be able to recover much sooner due to solutions for companies around the world which are its strong underlying fundamentals. continually aiming to strengthen their competitive edge. This will support companies seeking more effective and In 2008, the Labuan International Business and Financial cost-effi cient ways of doing business. For the niche Centre (IBFC) maintained positive growth across all key business of investment holding company, further fl exibility business sectors despite the more challenging global is being accorded for such companies to co-locate their environment. During the year, major policy initiatives were operations in Kuala Lumpur to enable such companies to also implemented to transform Labuan from a traditional leverage on the facilities and infrastructure that is available offshore fi nancial centre to become a vibrant business and in Malaysia. fi nancial centre. These initiatives to reinvent and reposition Labuan to be at the higher end of the fi nancial service Labuan IBFC has continued to exhibit resilience and chain have contributed to maintaining the competitive record growth in the key business sectors including position of Labuan. In addition, the rebranding of Labuan banking, insurance, trust companies and Islamic fi nance. in January 2008 as the Labuan IBFC signifi es the beginning Established as a full-fl edged business and fi nancial centre, of the bold step towards reinforcing Labuan’s position as Labuan IBFC is now home to the top-ranked fi nancial a business and fi nancial centre that provides the best institutions that originate from more than 80 countries, opportunities and services to its customers and investors, including international Islamic fi nancial institutions. Labuan and thus become a highly connected, convenient and cost- IBFC has also seen steady expansion in terms of the effi cient business and fi nancial centre in the region. fi nancial product offering as well as the volume of activity. The growth in the number of fi nancial institutions and company registration in Labuan IBFC has sustained an annual rate of increase of more than 10% demonstrating the growing participation in Labuan IBFC as a jurisdiction to conduct international business. 7 In the area of international banking, the industry had to be taxed under the Income Tax Act 1967. In enhancing its recorded signifi cant increase in total loans and advances, delivery system, LOFSA is upgrading the on-line company complemented by a low gross non-performing loans level registration system which is being operationalised in 2009 of 1.9% of total loans. Leasing remained the key business thereby improving the speed of registration and creating a sector with an increase in leased assets by 22.9%, more user friendly registration system. underpinned by the activities in the oil and gas, shipping and aviation sectors. The insurance industry achieved To effectively promote Labuan IBFC as a premier jurisdiction a signifi cant expansion in 2008 by recording a gross for international business and fi nancial centre in the region, premium exceeding the USD1.0 billion mark, of which LOFSA had established a separate marketing arm, Labuan 57.0% of premiums were generated from non-Malaysian IBFC Inc Sdn. Bhd. in May 2008. The separation of the business. This achievement bodes well for Labuan IBFC marketing function from LOFSA will reinforce the effective as the reinsurance centre for the region. regulatory and supervisory oversight of Labuan fi nancial institutions. Islamic fi nance in Labuan IBFC has continued to record positive performance particularly in the areas of Islamic Under the current global environment, international fi nancial private funds and retakaful business. In 2008, total Islamic centres have come under greater international scrutiny that private fund size doubled to USD2.8 billion while retakaful calls for higher standards of supervision and regulation. gross contributions increased by 48.2% to USD162.3 million, In this regard, LOFSA remains vigilant in ensuring that further strengthening the supportive role of Labuan IBFC in effective regulatory regime and supervisory oversight the Malaysia International Islamic Financial Centre (MIFC) are in place. LOFSA accords the highest priority in its initiative. regulatory and supervisory functions. As part of its effort to further enhance the regulatory framework, LOFSA issued Recognising the need to adapt to the more challenging guidelines on corporate governance for Labuan banks to business and economic conditions, LOFSA had implemented ensure that their activities are conducted in a safe and initiatives aimed at promoting a more conducive business sound manner and are in line with high standards of environment in Labuan IBFC. To improve the cost structure professionalism and prudent business practices. LOFSA in Labuan IBFC, LOFSA had reduced the annual fee for had also continued to refi ne the risk-based supervisory Labuan companies. In addition, Labuan companies may opt framework to identify and assess the emerging risks 8 LOFSA ANNUAL REPORT 2008 within the fi nancial institutions that may pose supervisory and Islamic, without impinging on the continuing status concerns. This will provide an early warning mechanism to of Labuan IBFC as a well regulated centre, with strong facilitate appropriate response measures to preserve the corporate governance and high international supervisory stability and soundness of Labuan IBFC. standards. A separate legislation on Islamic fi nance that features provisions on Shariah governance, licensing Labuan IBFC had been affi rmed as a “low risk” jurisdiction requirements for Islamic banking, takaful and retakaful for money laundering by the Asia/Pacifi c Group on Money activities as well as Islamic trust and foundations will also Laundering and there are suffi cient checks and controls be introduced. in place in Labuan IBFC to ensure businesses channeled through Labuan are legitimate and clean. LOFSA is also The strategies that have been put in place will serve a member of international organisations, including the towards ensuring that Labuan IBFC continues to thrive as Offshore Group of Banking Supervisors, International a vibrant and active international business and fi nancial Association of Insurance Supervisors and International centre over the medium and longer term. Organisation of Securities Commissions. The designation of Labuan as a committed jurisdiction reaffi rms the On the fi nancial performance of LOFSA, I am pleased to commitment of the Malaysian Government to subscribe to announce that for the year ended 31 December 2008, the OECD’s standard on effective exchange of information to LOFSA recorded an operating income of RM26.9 million prevent tax evasion. while the total reserves in 2008 amount to RM29.0 million. Moving ahead, LOFSA remains committed to its long- The success of Labuan as a competitive, cost effi cient and term goals in maintaining Labuan IBFC as a preferred innovative international business and fi nancial centre is a international business and fi nancial centre of high integrity shared responsibility involving continuous engagement and and repute. LOFSA will also continuously review the collaboration between industry participants including both legislation governing all facets of business and operation the providers and the users of the fi nancial services, the in Labuan IBFC. The objective is to create a more facilitative regulators and the Government.