Is Singapore Ready for Stricter AML Measures?

For many years, Singapore has been a trendy financial hub for high-net-worth individuals seeking more varied and sophisticated wealth management services.

Still, the sector of wealth management is under increasing scrutiny due to associated ML/TF risks arising from high-value transactions and complex financial structures.

These financial institutions (FI’s) are essential gatekeepers in this sector, ensuring fund flows into Singapore are legitimate and compliant with AML/CFT.

Overview Of New Guidelines

Over the past two years, MAS has issued a few guidance papers to help the industry in implementing robust AML/CFT controls.

Guidance papers were drawn up that detail supervisory expectations for specific vital controls, including the identification of customers and their beneficial owners’ sources of wealth.

This latest circular is looking to provide additional clarification to the wealth management sector of FIs on verifying the sources of wealth (SOW) of their clients before establishing business relationships with them.

Why Is Establishing SOW Critical?

It is critical to establish customers’ SOW for a variety of reasons, including the following:

• It helps FIs form a clearer understanding of their customers and the legitimacy of their assets.
• It guides the FIs in monitoring customer transactions continuously against ML/TF risks and reputational risks from dealing with illicit assets.

How Should FI’s Establish SOW?

FIs should have a risk-proportionate and reasonable approach to establishing customers’ SOW.

It does not call for a one-size-fits-all strategy, but tailors measure the unique circumstances of each customer. Here are some principles FIs should consider:

A Focus on Relevant Wealth

The FIs should seek to obtain information on the entirety of each customer’s wealth, to the greatest extent possible but emphasize that SOW is more material or has a higher risk.

It may not be possible to corroborate specific sources of wealth, particularly those from many years ago, but focus should be placed on the most relevant and significant parts.

Access to Credible Information

In the case of material SOW, FIs should instead rely more on more reliable corroborative information, such as audited accounts or documents from independent third parties.

Benchmarks and assumptions used to check whether the information is plausible must be reasonable, relevant, and appropriate for a given customer risk profile.

Obtaining Relevant Evidence

FIs should exercise judgment in determining what documents are necessary to corroborate a customer’s SOW and what they can reasonably do without.

FIs should use independent and reliable documents and information from credible public sources.

Read Also:

Singapore’s Quadruples AML Fines for Corporate Service Providers
Singapore MFA Reveals New Anti-Money Laundering Measures
Singapore Publishes Updated Money Laundering National Risk Assessment Report

What Are the Challenges?

Onboarding Process Impact

One challenge is how to reduce undue delays in the onboarding of bonafide customers. While stringent verification may be called for, an FI should at all times temper it with efficient customer service, lest it lose its competitiveness as a financial center.

Balancing Risk and Compliance

It is further expected that FIs should ensure that their policies and procedures are manageable but effective in mitigating ML/TF risks.

Continuous review and adjustments will, therefore, be required based on evolving risks and changing regulatory expectations.

What Is the Industry’s Next Step?

MAS will continue with the engagement process with the industry in fine-tuning AML/CFT controls. ACIP is working on a paper on best practices in the establishment of SOW, further supporting FIs in compliance.

Is Singapore Ready to Tighten AML Measures?

The tightening of the AML/CFT regime in the wealth management sector not only brings Singapore into further compliance with FATF recommendations but also reiterates a broader commitment to the integrity of its financial system.

During the process of negotiating these challenges, the continuous engagement and collaboration between regulators and FIs will be very instrumental as regulations evolve.