CORPORATE VALUES - Labuan IBFC · 4 LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE I am pleased...

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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

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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.


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.


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.



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.


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


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,


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



strategicallypositionedcangrowintandemwiththeregion.LabuanFSAexpectstheyear2019tousherinanotheroutlookofpositivityandbusinessgrowthforLabuanIBFC.

Iampleasedtoannouncethatfortheyearended31December2018,LabuanFSArecordedanincreaseinoperatingrevenueofRM66.03millionascomparedtoRM63.74millionin2017,whileitstotalreservesalsoincreasedtoRM76.81million.

Toconcludemyreport,IwouldliketoextendmyappreciationandgratitudetotheChairmanandMembersoftheAuthorityfortheirsupportthroughouttheyear.IwouldalsoliketothankthestaffofLabuanFSAfortheircommitmentandcontinuouscontributionsin2018whichledtorecordachievementsfortheyear.


11ANNUAL REPORT 2018

CORPORATE INFORMATION

For further information,please go to: www.labuanibfc.com


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.


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


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)


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


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


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


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.


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


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.


• LabuanFSAtogetherwithBankNegaraMalaysiaconductedanawarenessprogrammefortheLabuanbusinesscommunitytopromotetheinitiativestoboostbusinessesandtobridgefinancialsectorwiththelocalSMEs.Theprogrammeincludedbriefingonthelatestpolicyandproceduresoffinancingfacilitiesanddebitstructuringschemes.AbriefingwasalsoconductedtothefinancialinstitutionstoincreasetheircapabilitiesandequipthebankofficerswiththeknowledgeonfinancialmattersofSMEs.

• AdialoguesessionwasheldwithkeyrepresentativesfromthevariouslocalLabuanChambersofCommerceandIndustriestoexchangeviewsoncurrentissuesimpactingtheeconomyandbusinessenvironmentinLabuan.

• LabuanFSAheldbilateralmeetingswiththeLabuanIBFCindustryassociations.Atthemeetings,LabuanFSAprovidedtheglobaleconomicoutlookoftheyearandsharedLabuanFSA’sstrategicbusinessplan2018-2020.Themeetingsalsosharedtheemergingtrends,LabuanIBFC’sprospectiveonopportunitiesandchallengesfacingtheinternationalbusinessfinancialcentresaswellasthetransformationplanofLabuanIBFC.

• LabuanFSAincollaborationwithJabatanPeneranganMalaysiaheldtheBudgetTalk2018fortheLabuancommunity.ThebriefinghighlightedtheimpactoftherelevantitemsunderthebudgetthatwererelatedtoLabuan.

EVENT HIGHLIGHTS

2018

QUARTER 1


• 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


• 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




• 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


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


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


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.



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:


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.


INTERNAL AUDITTheGroupInternalAudit(GIA)supportstheARMCindischargingitsresponsibilitiesbyprovidinganindependent,objectiveassuranceandconsultingactivitydesignedtoaddvalueandimprovetheLabuanFSAanditssubsidiaries’operations.ThisfacilitatedLabuanFSAinaccomplishingitsobjectivesbybringingasystematic,disciplinedapproachto

evaluateandimprovetheeffectivenessofriskmanagement,control,andgovernanceprocesses.

GIA’srisk-basedauditapproachfocusesonvulnerableandstrategicrisks,whichareprioritisedaccordingtothestrategicdirectionsusingtheEnterpriseRiskManagementFramework.


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



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.



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



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



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



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



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



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



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



TheBCPwillbeactivateddependingontheimpactofthedisasterthathasbeenidentifiedundertheorganisation’slevelofemergencyasshowninDiagram9.

Diagram 9: LabuanFSA’sEmergencyLevel

Minorincidents(4to8hours)

LEVEL 2Emergency

(8to24hours)

LEVEL 3MajorCatastrophe

(Morethan24hours)

LEVEL 4MinorIncidents

(Lessthan4hours)

LEVEL 1



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.



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


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



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




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



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



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


2017


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


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


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).



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



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




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





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.



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%).



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.


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.




POLICY DEVELOPMENT


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


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.


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.


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.


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.


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.


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


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


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.



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.



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.



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.



FINANCIAL STATEMENT


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


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,


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.


STATEMENTS OF COMPREHENSIVE INCOME FORTHEYEARENDED31DECEMBER2018


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



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


70,449,0076,357,260


THE AUTHORITY


62,768,0701,980,114



64,748,1845,144,294




STATEMENTS OF CASH FLOWSFORTHEFINANCIALYEARENDED31DECEMBER2018


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


STATEMENTS OF CASH FLOWS FORTHEFINANCIALYEARENDED31DECEMBER2018


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



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.



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.




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.




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.




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.




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.




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.




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.




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.




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.




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.




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.




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.




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.




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.



4. REVENUE

5. INCOME FROM INVESTMENTS


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


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



6. OTHER INCOME/(EXPENSES)

Includedinotheroperatingincome/(expenses)arethefollowing:


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:


2018RM

2017RM

2018RM

2017RM

Infrastructureforschoolbuilding (377,308) (287,119) (377,308) (287,119)

**GrantfromLabuanFSAtoPristineEraSdnBhd.



2018RM

2017RM

2018RM

2017RM

Staffcosts* 32,430,500 34,553,062 24,921,362 26,407,201

*Theseincludedthefollowingstaffcosts:


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


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


2018RM

2017RM

2018RM

2017RM

Statement of comprehensive income:Deferredtax(Note11):RelatingtooriginationoftemporarydifferencesOverprovisioninprioryear

(16,183)2,897

(3,042)266

--

--

(13,286) (2,776) - -



8. INCOME TAX CREDIT (CONTINUED) Reconciliationbetweentaxexpenseandaccountingsurplus

Thereconciliationbetweentaxexpenseandtheproductofaccountingsurplusmultipliedbytheapplicablecorporatetaxratefortheyearsended31December2018and2017areasfollows:


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) - -


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



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)




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.



11. DEFERRED TAX ASSETS

Thedeferredtaxassetsareinrespectofplantandequipment.

Deferredtaxassetshavenotbeenrecognisedinrespectofthefollowing:


2018RM

2017RM

2018RM

2017RM

Atbeginningofyear

Recognisedinthestatementsofprofitorloss

6,405

(512)

9,181

(2,776)

-

-

-

-

Atendofyear 5,893 6,405 - -


2018RM

2017RM

2018RM

2017RM

Unutilisedtaxlosses 1,512 1,498,448 - -

1,512 1,498,448 - -

Theunutilisedtaxlossesdonotexpireundercurrenttaxlegislation.DeferredtaxassetshavenotbeenrecognisedinrespectofthisitembecauseitisnotprobablethatfuturetaxableprofitswillbeavailableagainstwhichtheGroupcanutilisethebenefitstherefrom.



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

-


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


12. FEES AND RECEIVABLES



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


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


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)

- - - - - -


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:



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


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).


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 - -



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


2018RM

2017RM

2018RM

2017RM

Cashatbanks:

UnitedStatesDollar

HongKongDollar

752,797

-

1,297,417

126,439

752,797

-

1,297,417

-


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.


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




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.


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


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



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


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



17. OTHER PAYABLES

18. LEASE COMMITMENTS

Asoftheendofthefinancialperiod,leasecommitmentinrespectofrentalofpremiseisasfollows:


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.


2018RM

2017RM

Financialyearended31December:20182019

1,682,8211,660,334

1,682,821-

3,343,155 1,682,821



19. RELATED PARTIES DISCLOSURES a) Services rendered

Inadditiontotherelatedpartyinformationdisclosedelsewhereinthefinancialstatements,thefollowingsignificanttransactionsbetweentheGroupandtheAuthorityandrelatedpartiestookplaceattermsagreedbetweenthepartiesduringthefinancialyear:

Forthepurposesofthesefinancialstatements,partiesareconsideredtoberelatedtotheGroupandtheAuthorityiftheGroupandtheAuthorityhastheability,directlyorindirectly,tocontrolthepartyorexercisesignificantinfluenceoverthepartyinmakingfinancialandoperatingdecisions,orviceversa,orwheretheAuthorityandthepartyaresubjecttocommoncontrolorcommonsignificantinfluence.

b) Transactions with key management personnel


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)


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



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.



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


2018RM

2017RM

2018RM

2017RM

UnitedStatesDollarHongKongDollar

75,280-

142,43012,644

75,280-

129,74712,644




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


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


Totalnetundiscountednon- derivativefinancial assets/(liabilities) 77,973,775 (2,819,880) 1,409,110 76,563,005




THE AUTHORITY

On demandor withinone year

RM

One yearTo

fiveyearsRM

OverfiveyearsRM

TotalRM

2018


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


2,000,0007,722,820

2,000,000-

--

4,000,0007,722,820


Totalnetundiscountednon-derivativefinancial assets/(liabilities) 72,691,559 (1,321,919) 551,367 71,921,007

2017


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


1,500,00011,727,795

4,000,000-

--

5,500,00011,727,795


Totalnetundiscountednon- derivativefinancial assets/(liabilities) 71,236,209 (2,819,880) 1,409,110 69,825,439




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.


2018RM

2017RM

LoansandreceivablescarriedatfairvalueStaffhousingandvehicleloans 890,460 1,645,137


Level 1RM

Level 2RM

Level 3RM

Level 4RM

2018

Staffhousingandvehicleloans - 890,460 - 890,460

2017

Staffhousingandvehicleloans - 1,645,137 - 1,645,137


22. AUTHORISATION OF FINANCIAL STATEMENTS FOR ISSUE

ThefinancialstatementswereauthorisedforissuebytheMembersoftheAuthorityon15April2019.

21. CASH AND CASH EQUIVALENTS



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.


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CORPORATE VALUES - Labuan IBFC · 4 LABUAN INTERNATIONAL BUSINESS AND FINANCIAL CENTRE I am pleased...

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