The circular reminds all Financial Institutions (FIs) to stay vigilant to the ML/TF risks in wealth management. FIs are expected to identify their high growth areas (eg. material increase in demand based on the number of new accounts opened or the size of fund flows) and take steps to ensure that existing controls remain adequate to deal with key and emerging ML/TF risks (such tax evasion- and corruption-related risks) posed. The circular highlights the following:
Strengthen Board and Senior Management (BSM) oversight and risk and control functions
- BSM are kept apprised of the potential ML/TF risks arising from high growth areas, set a clear tone from the top on actions to be taken to deal with these risks, and ensure that risk and control functions are well supported to pose an effective check and balance to front-line functions.
- BSM are kept updated on the results of quality assurance reviews and testing done to validate the effectiveness of AML/CFT controls in high growth areas.
- Risk and control functions are adequately resourced and familiar with changes in business strategy or target customer segments.
Conduct added review and quality assurance testing
- Take added steps to review existing Customer Due Diligence (CDD) practices in high growth areas.
- Ensure that both front-line and control functions are functioning effectively.
- Added quality assurance testing should be done on key controls areas relating to the (a) identification of higher risk customers, including those that pose higher tax evasion- and corruption-related risks and (b) corroboration of the source of wealth (SOW) and source of funds (SOF) of customers.
- If existing CDD controls in place are found to be inadequate to deal with specific risk characteristics in high growth areas, FIs should promptly enhance their existing CDD practices.
Continue to exercise vigilance over higher risk customers and transactions
- Be cognizant of the added ML/TF risk when dealing with legal structures/arrangements used for the purpose of wealth management (such as trust arrangements, insurance wrappers and family offices) established for the benefit of the beneficial owners.
- Conduct indepth enquiry to obtain a clear understanding of the purpose of the legal structure/arrangement used, assess whether there is a clear and legitimate purpose for the use of complex structures/arrangements and the commensurate ML/TF risks, and take necessary measures to pierce through the structures/arrangements to identify and verify the ultimate beneficial owners (UBO).
- Understand and identify key controllers behind the structures/arrangements used, beyond obtaining the ownership structure which may only depict the legal owner of the entity.
- Conduct appropriate checks to independently corroborate the source of wealth and funds of the legal structures/arrangements and the beneficial owners.
- Should not regard the granting of tax incentives to legal structures/arrangements as assurance of the legitimacy of the clients, but should conduct the necessary due diligence on them independently.
- Take note of prospective customers that withdraw their applications due to an inability or unwillingness to provide requisite CDD information. Consider filing a Suspicious Transactions Report (STR).
- As part of their ongoing monitoring, remain watchful of anomalous transaction spikes and unexpected fund flows with third parties or purportedly for business purposes, especially to or from higher risk jurisdictions.
- Other than third party flows, be vigilant to related party transactions to detect risks associated with insider trading or anomalous commingling of business and personal funds.
- Strongly encouraged to make use of data analytics to strengthen their monitoring for such unusual transaction patterns as well as to identify customer networks of concern.
For the full details, please refer to the MAS website https://www.mas.gov.sg/regulation/circulars/circular-on-money-laundering-and-terrorism-financing-risks-in-the-wealth-management-sector
Disclaimer: The information, views or opinions expressed are provided for general information and should not be relied upon as legal or professional advice.