On 4 September 2020, the Monetary Authority of Singapore (MAS) released a new report on “Effective AML/CFT Controls in Private Banking”, which should supplement the MAS’ Guidance on Private Banking Controls issued in 2014.

The new paper sets out MAS’ supervisory expectations in relation to anti-money laundering controls in the private banking sector following from a series of thematic inspections on private banks (“PBs”) to assess the effectiveness of their AML/CFT risk management strategies.

On publishing the report, the regulator specifies that “while this paper is derived from the inspections of PBs, the takeaways are applicable and relevant to other types of financial institutions (“FIs”), with the appropriate calibrations. All FIs should therefore study and incorporate learning points from this guidance in a risk-based and proportionate manner”.

Key Control Areas for Improvement

The report identifies 5 key areas PBs should focus on:

  1. Corroborating customers’ source of wealth and funds
  2. Detecting and mitigating tax-related ML risks
  3. Detecting and inquiring into commercial/third-party transactional flows
  4. Exercising active senior management oversight
  5. Instituting sound performance management framework to foster strong risk culture

Click the image above to access the report in full.

When it comes to corroborating customers’ source of wealth, MAS requires that financial institution obtain objective supporting information, not relying only on customers’ representations but obtaining substantive information to establish the activity that generated the funds. In particular, further due diligence should be conducted where compliance teams note alarming information discrepancies.

In regard to detecting and mitigating tax-related ML risks, MAS recommends to:

  • strengthen financial institutions’ ability to identify customers presenting higher tax-related ML risks and proceed with enhanced due diligence controls;
  • provide adequate guidance and training to staff to recognise tax red flags at onboarding (including through continuous training to educate on new strategies);
  • introduce ongoing monitoring controls to enable prompt detection of tax-related red flags of customers’ behaviour and transaction patterns for timely risk mitigation.

When detecting and inquiring into suspicious third-party flows, MAS not only recommends PBs to institute effective controls but also to set up clear follow-up actions to facilitate customer exits, if necessary.

MAS also highlights the importance of setting a strong risk culture from the top. More specifically, the regulator recommends introducing an incentive structure geared towards fostering strong AML/CFT risk awareness as well as establishing clear accountability for the execution of key AML controls.

Finally, the paper focuses on how PBs should strengthen their performance management process to reflect their commitment to AML/CFT prevention. In particular, assessment should be holistic and focus on both the quality and quantity of execution. AML-related performance lapses should be specifically taken into account in staff’s performance scorecards and appropriate action should be taken against staff with recurrent AML/CFT lapses.

AML/CFT Outsourcing Best Practices

In Singapore and across the APAC region, the popularity of third-party RegTech providers to strengthen AML/CFT controls at financial institutions has increased steadily over the past few years.

Earlier this year, MAS provided additional guidance by releasing a report on “Strengthening Capital Markets Intermediaries’ Oversight over AML/CFT Outsourcing Arrangements”. The paper highlights key principles that Capital Markets Intermediaries (CMIs) should follow when relying on third-party providers for the outsourcing of their anti-money laundering and counter-terrorism financing strategies.

One of the key focuses of the July report was the importance of board and Senior Management understanding the money laundering risks involved in their business and exercising strong oversight over their controls. The theme – which also represents one of the 5 pillars of the new recommendations – appears to be of particular interest to MAS, in line with the global trend towards greater individual accountability accelerated by the EU’s Sixth Anti-Money Laundering Directive.

Partnering with Know Your Customer

At Know Your Customer, we specialise in partnering with financial institutions and other regulated organisations to implement fully secure yet customer-friendly digital onboarding and AML/CFT solutions in Singapore and globally.

Our partnership formula provides a thorough mapping of clients’ policies to the KYC/AML and client onboarding procedures provided by our solutions as well as the identification and implementation of multiple workflows and digital journeys based on customer types and specific enhanced due diligence requirements. Our solutions also provide built-in immutable audit trails recording all AML/KYC actions performed on any customer by the system and the compliance team, ensuring transparency and facilitating periodic internal and external reviews of existing processes.

If you’d like to find out more, request a demo of Know Your Customer here.