The regulators in Singapore have been busy in recent times, issuing multiple circulars and information papers detailing the expected market standards and supervisory expectations for Financial Institutions (FIs) in relation to Anti-Money Laundering and Counter-Terrorism Financing (AML/CFT) controls. This increased regulatory scrutiny comes in light of the results from recent inspections of areas where FIs could strengthen their compliance efforts.
Some of the following key areas of discussion:
- Prevalence of Citizenship or Residency by Investment programs
FIs are increasingly facing the complex challenge of customers possessing multiple nationalities. While this may be legitimate, it can also be exploited by individuals seeking to obscure their true identity to engage in illicit activities without such activities being linked back to them. Particular attention should be paid to nationalities acquired through Citizenship by Investment (CBI) or Residency by Investment (RBI) programs, as these can be susceptible to abuse.
How can this be mitigated?
FIs should:
● conduct rigorous due diligence on customers with multiple nationalities;
● carry out comprehensive investigations on the source of wealth (SOW) and source of funds (SOF) of the customer used to acquire additional nationalities;
● understand the reasons for acquiring these additional nationalities; and
● assess the reputation and regulatory oversight of the relevant CBI/RBI programs.
A risk-based approach is crucial in evaluating customers with multiple nationalities. FIs should consider factors such as the frequency of nationality changes, any adverse news or media reports associated with the customer or their nationalities and the overall risk profile of the customer.
For high-risk customers, FIs should implement enhanced due diligence measures, which may include:-
● obtaining detailed information on the purpose and intended nature of the business relationship;
● conducting extensive background checks;
● detailed verification of identity documents, SOW and beneficial ownership information;
● implementing a more stringent approach to the continuous monitoring of the customer’s activities, including transaction patterns, nexus to high-risk jurisdictions and adverse media hits.
- Strengthened Red Flag Identification
a) Training
To have effective AML/CFT controls, FIs must prioritise equipping their staff with the necessary knowledge and tools. This includes providing comprehensive training and familiarity to identify red flags, conduct risk assessments, determine and establish SOF/SOW and implement appropriate risk mitigation measures. By empowering staff to recognise suspicious activity, FIs can significantly strengthen their defences against financial crime.
b) Tools
In addition to robust staff training, FIs should leverage advanced technology solutions to improve the efficiency and effectiveness of their AML/CFT compliance efforts. Sophisticated analytics tools can analyse vast amounts of data to identify anomalies, inconsistencies and suspicious patterns that may not be apparent to human review. As shared during some of the recent discussions raised during the Insights Forum, by automating these processes, FIs can significantly improve their ability to detect and respond to potential threats, ultimately reducing the risk of financial crime.
- Rigorous Source of Wealth Establishment
FIs must exercise due diligence in assessing the plausibility of their customers’ stated SOW, especially for high-risk customers such as Politically Exposed Persons. Independent verification of SOW information is crucial, particularly for sources like gifts, inheritance or business ownership. By corroborating these claims, FIs can significantly reduce their exposure to financial crime concerns.
While assumptions and benchmarks can be useful tools in assessing SOW, it must be reasonable and supported by solid evidence. For instance, when evaluating SOW derived from dividend income, FIs should independently verify the customer’s shareholdings and review multiple years of financial statements. By adopting a rigorous and evidence-based approach, FIs can make informed decisions and mitigate the risks associated with potential financial crime.
Senior management plays a pivotal role in ensuring the effectiveness of an FI’s AML/CFT program. They should exercise close oversight of these activities and allocate adequate resources to support compliance efforts, particularly when corroboration of SOF/SOW is necessary.
- Effective Risk Mitigation Measures
Following the filing of a Suspicious Transaction Report or the emergence of reasonable suspicion, FIs must promptly implement appropriate risk mitigation measures. These measures may include
● enhanced monitoring of the customer’s accounts;
● imposing account restrictions; or
● in severe cases, closing the account altogether.
Senior management plays a critical role in overseeing risk mitigation measures. They must ensure that these measures are adequate to address the specific risks identified and are implemented effectively. Regular reviews and assessments should be conducted to evaluate the efficacy of these measures and to identify any necessary adjustments or improvements.
- Holistic Monitoring and Information Sharing
To gain a comprehensive understanding of customer relationships and potential risks, FIs should facilitate effective information sharing across different business units. This includes sharing crucial information such as customer profiles, transaction history and risk assessments. By breaking down silos and promoting collaboration, FIs can develop a more holistic view of their customers and identify emerging risks. The Enterprise-Wide Risk Assessment exercise is a good example of such a determination.
To further strengthen their risk management capabilities, FIs should implement enhanced monitoring techniques, such as transaction monitoring and customer profiling. These advanced tools can help identify suspicious activities, unusual patterns and emerging risks that may not be apparent through traditional monitoring methods. By utilising these technologies, FIs can proactively mitigate risks and protect their institutions from financial crime.
Conclusion
By strengthening due diligence, improving risk assessment, leveraging on technology (while ensuring technology risk is managed) and fostering a compliance-first culture, FIs can not only meet Singapore’s high standards but also safeguard themselves against the risks associated with AML/CFT in the financial sector. FIs that prioritise these measures will be better positioned to mitigate financial crime risks, protect their reputation and comply with evolving regulatory standards.
What does this mean for you?
Keeping abreast with regulatory expectations is imperative for maintaining your business’ regulatory compliance and business reputation.
Curia Regis’ experienced Singapore team offers comprehensive regulatory and compliance support, enabling you to understand and fulfil your AML/CFT obligations under the Information Paper. We can tailor a bespoke compliance solution to address your specific business model and complexity.
Contact us at [email protected] to know more and follow our LinkedIn page https://uk.linkedin.com/company/curiaregis for updates in the regulatory space.
