LABUAN, Aug 21 — Industry players of financial technology (fintech) in the Labuan International Business and Financial Centre (Labuan IBFC) must adhere to the Labuan Digital Banking Framework (guidelines) to ensure full compliance with the current operational prerequisites.
The regulator of Labuan IBFC, Labuan Financial Services Authority (Labuan FSA) has developed the guidelines tailored for fintech business operations.
Labuan FSA in sharing the guidelines said following allegations of the absence of the guidelines for fintech businesses, these comprehensive guidelines were formulated in December 2020 and continue to hold significant relevance today.
“In support of the emerging trend to embrace innovation in Labuan IBFC, Labuan FSA has developed the guidelines for qualified applicants.
“The guidelines are to offer Labuan banking businesses, which are conducted primarily or wholly through digital or other forms of electronic channels.
“It allows qualified corporations to conduct banking business via the establishment of a digital bank in Labuan IBFC,” the agency said.
The guidelines’ main aim is to attract qualified fintech service providers that wish to undertake digital banking business to help spur the banking industry in Labuan IBFC in light of shifting customers’ preference to online or digital channels.
Applicants eligible to conduct Labuan banking activities (including digital banking business) may submit their applications in accordance with the requirements of the existing guidelines on entry criteria for Labuan Bank.
However, existing licensed Labuan banks that wish to undertake digital banking business are allowed to operate within the scope of their existing banking licence.
Meanwhile, applicants eligible to apply for Labuan investment banking business, primarily or wholly through digital or other forms of electronic channels, may submit their applications in accordance with the Guidelines on the Establishment of Labuan Investment Banking Business in Labuan IBFC.
The licence application can be submitted under Section 88 of Labuan Financial Services and Securities Act 2010 (LFSSA) or Section 63 of Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA).
The guidelines are issued pursuant to Section 4A of the Labuan Financial Services Authority Act 1996 (LFSAA) to clarify the provisions of Part VI of LFSSA and Part VI of LIFSSA.
Any person who fails to comply with these guidelines commits an offence and may be punishable under Sections 36B or 36G of LFSAA as the case may be.
The agency said it may also undertake the appropriate enforcement action to the extent provided by the law.
The guidelines also emphasised Internal Controls and Risk Management ensuring the policies and controls on technology-related areas, especially on information security, system resilience and business continuity management including IT governance, cybersecurity, online client onboarding processes and systems are adequate.
The agency also reminded that fintech firms must have adequate cyber risk management policy in relation to:
(i) Occurrence and severity of cyber breaches including the maximum service downtime, recovery time objectives, contingency measures etc;
(ii) Measures to manage cyber risk encompassing prevention, detection and recovery from a cyber breach;
(iii) Roles and responsibilities of key personnel and functions involved in cyber risk management; and
(iv) Processes and procedures for the Labuan digital bank’s management response to cyber breach risk events (e.g. assessment, decision-making rectification and communication with stakeholders).
Fintech firms must establish procedures for regular review of their security and technology-related arrangements to ensure that such arrangements remain appropriate in regard to the continuing developments in IT based on the cybersecurity risk profile.
It reminded fintech firms to have robust know-your-customer (KYC) including e-KYC framework which consists of proper customer due diligence and enhanced due diligence processes for onboarding clients and for transactional activities.
— Bernama
