MAS getting serious with AML/CFT compliance

11 November 2024 | Asia | Articles

The MAS released a guidance paper on 30 October 2024 setting out their supervisory expectations and good practices for effective anti-money laundering and countering the financing of terrorism. The inspections have led to hefty fines being imposed on two fund management companies and reprimands made against senior management in the past 6 months for breaching the MAS’ requirements. These actions clearly show that the MAS is serious about cracking down on these compliance breaches, so it’s worth getting to grips with the new expectations to avoid the consequences.

What led to the enforcement actions?

In both cases, the MAS attributed the control failures and breaches of the anti-money laundering and countering the financing of terrorism (AML/CFT) requirements to the fund management company’s (FMC’s) senior management, ultimately reprimanding them. One of the FMCs was fined S$1.9 million and the other was imposed with a penalty of S$2.5 million. The FMCs were found to fail to comply with various AML/CFT requirements over several years. These breaches were largely due to inadequate AML/CFT controls (relating to policy, procedures and processes) being put in place by the FMCs in a wide range of areas.

The MAS noted deficiencies in areas such as customer due diligence, sources of wealth, record-keeping, customer risk assessments, enterprise-risk wide assessments, transaction monitoring, suspicious transaction reporting, and internal audits.

What were the lessons learnt from the MAS inspections?

In the guidance paper, the MAS sets out its supervisory expectations on firms in relation to their implementation of the AML/CFT controls, as well as observations of good practices gathered from its inspections.

The key lessons learnt from the inspections include the following:

• Customer risk assessments: You should consider your customers’ current and previous nationalities and identities, and assess whether multiple nationalities are held for valid reasons.
• Red flag identification and escalation: Although the MAS doesn’t expect firms to conduct forensic analysis of customers’ documents, it encourages the use of technology to detect potentially fraudulent documents and put adequate guidance in place and training for staff to enable them to take appropriate steps to identify and escalate material red flags.
• Source of wealth (SOW) determination: Ensure the assessment process in verifying the legitimacy of your customer’s SOW is rigorous and avoid over reliance on customers’ representations. Closer oversight and enhanced monitoring by senior management are needed if you’re unable to establish the SOW of higher-risk customers. In this regard, the MAS provides guidance in the paper on the minimum information you need to obtain and verify when assessing SOW.
• Mitigating risk: Adequate risk mitigation measures should be established for addressing the risk concerns post-Suspicious Transaction Reporting filing and/or after a decision was made to exit customer accounts. The MAS expects firms’ senior management to closely oversee the business relationships of the customers in such circumstances.
• Ongoing monitoring: Measures must be put in place to facilitate information sharing on customers (and their related accounts, customer’s SOW and due diligence information) across different business units. These measures enable detection of red flags on an ongoing basis, for customers of higher ML/TF risk. We think this is particularly important for large firms offering a wide range of financial product and services.

Overall, the MAS expects senior management to take the lead in fostering a sound risk management culture by setting the right tone from the top. They’re expected to make sure close oversight is exercised to reinforce the effectiveness of AML/CFT frameworks and controls.

You can assess the robustness of your AML/CFT controls by performing a gap analysis against the guidance provided in this paper. It’s important to take appropriate and proportionate steps to address any gaps and incorporate the learnings from the gap analysis in your AML/CFT policies and procedures. Staff training can also promote strong ML/TF risk awareness, so it’s worth making sure your staff is adequately equipped with the necessary knowledge.

How can Bovill Newgate help you meet AML/CFT expectations?

Since 2015, our Singapore team have been actively supporting clients in:

• developing their AML/CFT policies and procedures or reviewing to enhance their existing policy and procedures
• providing appropriate and actionable advice (as part of our ongoing compliance support services) to help put in place appropriate AML/CFT control measures and deal with specific situations
• carrying out periodic AML/CFT internal audits.

You can find out more about our support here or get in touch below.