Information Paper on AML/CFT Supervisory Expectations from Recent Inspections
Ingenia Consultants
November 20, 2024
On 30 October 2024, the Monetary Authority of Singapore (“MAS”) issued an information paper on “AML/CFT Supervisory Expectations from Recent Inspections”. This information paper sets out the MAS’ expectations and good practices noted in recent anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) inspections conducted across a range of financial institutions (“FIs”), including banks, payment service providers, capital markets services licensees, licensed trust companies and direct life insurers. The information paper encourages financial institutions to benchmark themselves against the practices and supervisory expectations set out in the information paper in a risk-based and proportionate manner and conduct a gap analysis, taking into account the risk profile of their business activities and customers. A separate circular by the MAS emphasises this expectation that financial institutions conduct a gap analysis.
Assessment of Customer Risk
FIs should have a good understanding of their customers’ profiles in order to inform their money laundering (“ML”) and terrorism financing (“TF”) risk assessment of the customer at onboarding and ongoing monitoring of business relations. As part of their inquiries into the customer, FIs should, among other precautions, take reasonable measures to obtain and verify information on their customers’ current and previous nationalities and identities, particularly for higher-risk customers. The FI should then consider all the customer’s current and previous nationalities and identities when assessing potential adverse news screening alerts, including searches in the native languages of countries associated with the customer, and assessing the ML/TF risk. The FI should assess the ML/TF risk, taking into consideration factors such as citizenship and residency by investment (“CBI”/”RBI”) schemes that are assessed to be of higher risk[1], frequent changes in nationalities or key identifiers of the customer, material discrepancies in information or adverse news. However, the MAS also indicates that customers can hold multiple nationalities for legitimate reasons, including via CBI/RBI schemes.
Identification of Material Red Flags
FIs should exercise vigilance in identifying material red flags in documents obtained from customers as part of their customer due diligence (“CDD”) process. Where there are doubts about the legitimacy of documents or representations obtained from or made by the customer, e.g. because of significant discrepancy to publicly available information, accounting anomalies, or lack of official sign-off, further follow-up actions, such as conducting an additional inquiry and independent due diligence on the customer or taking additional risk mitigation measures, such as exiting the business relationship or filing of a suspicious transaction report (“STR”), should be triggered.
FIs should provide clear guidance for their staff on their responsibilities to identify material red flags in documents or representations obtained from or made by customers, including examples and their escalation. The FIs should periodically review their guidance and are encouraged to leverage technology to enhance their detection of potentially fraudulent or tampered documents.
Source of Wealth Establishment
Establishing the source of wealth (“SOW”) is essential to ensure the legitimacy of the customer’s SOW and inform the FI’s ongoing monitoring of business relations with customers. Therefore, FIs should apply rigour in assessing the plausibility of customers’ SOW and avoid overreliance on customers’ representations. For PEPs, private banking and wealth management businesses, the MAS expects FIs’ SOW establishment measures to encompass obtaining (i) a base set of SOW information, including details on seed money where relevant, and (ii) additional documents and information to independently corroborate the SOW of the customer. For other higher-risk categories of customers, FIs should also establish customers’ SOW by (i) obtaining a base set of SOW information, including details on seed money where relevant, and (ii) assessing whether any ML/TF risk concerns warrant and can be addressed by further corroborative checks. Where FIs are unable to establish a SOW that is of higher risk or a significant portion of a customer’s wealth, closer senior management oversight and enhanced monitoring are needed.
The MAS further re-emphasises the principles in its Circular on “Establishing the Sources of Wealth of Customers”, issued on 26 July 2024.
- Materiality
- Obtain information on the customer’s entire body of wealth.
- Focus on corroborating the more material or higher-risk SOW, e.g. SOW from higher-risk countries or higher-risk industries.
- Assess whether the residual risk of uncorroborated wealth is acceptable or whether additional risk mitigation measures are necessary.
- Prudence: Use more reliable corroborative evidence.
For example, the relationship between the donor and the recipient of a gift should be established, e.g., with a birth certificate; for business ownership, audited financial statements should be obtained, or unaudited financial statements should be triangulated with independent sources.
- Relevance: Exercise reasonable judgment in determining which documents or information are critical for SOW corroboration, e.g., documents from many years ago may no longer be easily available and not be of high relevance to the customer’s SOW.
Risk Mitigation Measures
FIs are expected to put in place timely and appropriate risk mitigation measures when a suspicious transaction report (“STR”) is filed or where there are reasonable grounds for suspicion that could warrant an STR to be filed on an account. Hereby, FIs should ensure that the risk mitigation measures taken are adequate to address the risk concerns and not solely rely on enhanced monitoring of the account. These measures are to ensure that FIs are not exposed to risks of facilitation of ML/TF activities while deciding whether to retain or close the accounts.
Senior management of FIs also needs to exercise close oversight of business relations with customers with suspicions of ML/TF. Clear guidance on escalation should be given, adequate resources should be available for account reviews, and senior management should be regularly updated.
Holistic Monitoring of Accounts
Holistic monitoring across business units is important for FIs to better understand the risks associated with customers and their related accounts, identify potential ML/TF risks and take any risk mitigationmeasures if required. For this purpose, FIs should share information on customers and their related accounts across different business units, particularly for higher-risk customers.
Ingenia Consultants Pte. Ltd. is supporting financial institutions in their compliance, including anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”). Moreover, our internal audit services provide the board of directors and senior management with assurance regarding these obligations. Reach out to us to learn more about our regulatory support.
For any further information, please contact:
Rolf Haudenschild
Co-founder
Ingenia Consultants Pte. Ltd.
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