The Monetary Authority of Singapore (“MAS”) has highlighted several key observations from *recent AML/CFT inspections Financial Institutions (“FIs”). These include gaps in customer due diligence processes, such as inadequate verification of source of wealth and insufficient monitoring of high-risk customers. MAS emphasized the need for FIs to enhance their risk-based approach and staff training to ensure compliance with AML/CFT regulations. *”AML/CFT Supervisory Expectations from Recent Inspections” published on 30 Oct 2024.
| Key Areas | Observations | Mitigation |
| Customer Risk Assessment | - Some FIs did not consider the risks associated with customers who hold multiple nationalities or golden passports.
| - FIs should assess the risk of identity “laundering” by obtaining all nationalities, considering the risks of multiple nationalities, and verifying information based on the level of risk.
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| Source of Wealth (“SOW”) Establishment | - Common weaknesses included over-reliance on customer representations, failure to scrutinize material discrepancies, use of unjustified assumptions, and a lack of rigor in assessing plausibility.
| - MAS has published guidance on Source of Wealth, advising that SOW assessments should be done in a risk-appropriate and reasonable way.
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| Holistic Monitoring of Accounts | - Siloed customer information and related accounts across different business units led to money laundering (“ML”) and terrorist financing (“TF”) red flags going undetected.
| - FIs should have processes to share customer profiles and onboarding information, including SOW details, across all business units.
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| Transaction Monitoring | - Some FIs failed to scrutinize transactions that were inconsistent with a customer’s profile, and therefore did not trigger a risk review of the customer.
| - FIs should question unusual transactions and determine if a review of the customer’s profile is needed.
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| Risk Mitigation Measures | - Some FIs delays in filing Suspicious Transaction Reports (“STRs”) after deciding to exit customer relationships for AML reasons.
- Risk-mitigating measures were not adequately implemented either (i) after filing an STR or (ii) following the decision to exit a customer account.
| - FIs should implement timely risk-mitigating measures when there are concerns about customers, including during the account closure process.
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| Guarding against Material Red Flags in customer due diligence (“CDD”) Documents | - Some FIs lacked procedures or guidance to ensure staff take reasonable steps to detect and escalate significant red flags in documents.
| - While advanced forensic skills aren’t required, FIs should set baseline expectations for staff to take reasonable steps to check for signs of fraud or forgery in customer documents.
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FOCUS AREA : SOW CORROBORATION
| Important to establish legitimacy of customer’s SOW | - Crucial to understand the customer, especially for private banking and wealth management businesses – which serve high-net-worth individuals.
- Informs Fls ongoing monitoring of the customer’s transactions
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| Not appropriate to apply one-size-fits-all or checklist approach | - Circumstances and profile of each customer differ
- The documents and information that an Fl can obtain on each customer would also vary.
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| Always assess for plausibility | - Possible = plausible
- When the circumstances of customer’s journey to wealth do not appear to be realistic or likely, do more checks and/or consider commissioning external reports.
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KEY PRINCIPLES TO GUIDE FI IN ESTABLISHING SOW OF CUSTOMERS
Establishing a customer’s source of wealth is part of broader AML/CFT controls to verify the legitimacy of their wealth and transactions. When financial institutions cannot verify a significant portion of a customer’s wealth or high-risk source of wealth, increased senior management oversight and closer ongoing monitoring are essential to mitigate the risk.
| Materiality | - Obtain information on customer’s entire body of wealth
- Focus on corroborating the more material or higher risk SOW
- Assess whether residual risk of uncorroborated wealth is acceptable or additional risk-mitigating measures would be necessary
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| Prudence | - Use more reliable corroborative evidence, e.g. audited statements
- Assumptions and benchmarks can be used, but with a reasonable basis. FI should assess to ensure that they are relevant and appropriate for the customer’s profile and circumstances
- Document the basis for the benchmarks and assumptions used
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| Relevance | - Exercise reasonable judgement in determining which documents and information are critical for SOW collaboration
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KEY TAKEAWAYS
| Ensuring clarity over MAS AML/CFI expectations | - MAS published a Circular on the key risk principles for SOW in July 2024.
- More specific supervisory expectations on specific cases areas from recent AML/CFT inspections of FI have been published on 30 October 2024.
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| Setting the right tone from the top remains a priority | - FIs should continue to make AML/CFT an organisational priority and take effective steps to strengthen risk awareness and foster the right behaviour in staff.
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| Continuing partnership with industry | - MAS welcomes feedback from the industry including on the AML/CFT areas where mote clarification may be needed.
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