Malaysia | Labuan Financial Services Authority issues Labuan Digital Banking Framework

A Labuan digital banking framework (the Guidelines) was issued by the Labuan Financial Services Authority on 7 December 2020. The Guidelines is intended to attract qualified fintech service providers that wish to undertake digital banking business to help spur the banking industry in Labuan nternational Business and Financial Centre in light of shifting customer’s preference to online or digital channels.

A corporation that:

• has strong financial resources and demonstrates ability to meet and maintain the applicable minimum paidup capital requirement (that is unimpaired by lossess of RM200 milllion or its equivalent in foreign currency);
• has credible and viable business plan which sets out the approach on how it intends to incorporate innovative use of technology for its operations to meet the proposed strategic business objectives;
  and
• demonstrates the ability to conduct digital financial services, e-commerce and technological-driven business,

may apply for a Labuan digital banking licence.

The requirements to be complied with are set out in the Guidelines and these include, without limitation:

• placement of a non-interest bearing security deposit of RM5 million or its equivalent in any foreign currency with the Labuan Financial Services Authority. The deposit is refundable after three years from the date of placement, subject to the assessment of the digital bank’s performance over three years.
• establishment of an operational office in Labuan to comply with the Labuan Financial Services and Securities Act 2010 or, as the case may be, Labuan Islamic Financial Services and Securities Act 2010.
• establishment of an in-house core banking system that processes and records daily banking transactions in regard to the Labuan banking activities as set out in paragraph 6 of the Guidelines.
• have in a place robust Know-YourCustomer (“KYC”) including e-KYC framework which consist of proper customer due diligence and enhanced due diligence processes for onboarding clients and for transactional activities.
• have a a credible exit plan to ensure that the bank is able to unwind its business operations voluntarily without any regulatory intervention and in an orderly manner without causing disruption to its customers and the financial system.