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Labuan extends exemptions to rules because of virus

Chris Hamblin, Editor, London, 18 December 2020


The Labuan Financial Services Authority has extended the application of some existing relaxations in its rules to ease the burden of compliance for banks and other financial firms under its aegis.

The LFSA issued a circular on 9 April which provided a set of "temporary regulatory reliefs" for Labuan entities as means of cushioning the bad effect caused by the outbreak of the current pandemic. To date, the market has still been suffering from adversity. Malaysia, of which Labuan is (at least in theory) a financially autonomous part, has seen further surges in cases in recent months which have restricted movement and business in general.

In view of these observations and in answer to the pleas of the financial sector, the Labuan FSA has decided to extend the applicability of some of the "temporary regulatory reliefs" which include the following.

  • Relaxations of rules that apply to administrative governance, made because of the continued travelling and movement restrictions.
  • Flexibility regarding the "technical" rules that govern the valuation of insurance/takaful liabilities in relation to: (i) permitting more realistic discount rates that related to something that the regulator describes as "a longer-term investment climate"; and (ii) a recognition of internationally-rated counterparties with good standing for the reserving requirements with regard to reinsurance/retakaful cessions.
  • The extension of deadlines for regulatory reports and submissions to the regulator.

'Substance' requirements

Among these relaxations of rules, 'substance' is a factor. Paragraph 6.3 of the Guidelines on Corporate Governance for Labuan banks (including investment and/or Islamic banks) and Labuan (re)insurers and (re)takaful operators make it clear that at east two board meetings ought to be held per firm in Labuan with the majority of the board physically present. For the last few months the regulator has decreed that the board meeting can be conducted virtually with no need for the board members to be physically present. Teleconferencing or videoconferencing, using the available software or meeting tools, have been encouraged. The LFSA has extended this to "calendar year 2021," a phrase which might take in the whole year.

The LFSA is relying on local trade bodies to disseminate the information to their member-firms.

Office politics

During the course of the pandemic, earlier in the year, the Malaysian Ministry of Defence imposed a Conditional Movement Control Order on Labuan Island. This ended on 6 December, allowing the Labuan FSA to reopen its premises the next day. Notwithstanding this, the Malaysian capital of Kuala Lumpur will continue to be under the CMCO until 20 December. In this regard, the Labuan FSA will be extending the closure of its KL facilities office and its staff in Kuala Lumpur will continue to work from home.

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