On March 3, 2023, the Monetary Authority of Singapore (MAS) issued a circular on money laundering and terrorist financing (ML/TF) in the wealth management sector. The guidance follows the launch of MAS’ Financial Services Industry Transformation Map (ITM) 2025, which highlighted the agency’s goal of working with the wealth management sector to “deepen its capabilities” and become “Asia’s center for philanthropy”.
To mitigate ML/TF risk, Singapore’s regulator urges financial institutions to stay vigilant and implement robust risk controls to ensure the wealth management funds that flow into Singapore are legitimate.
Risk Controls Guidance
MAS highlights three pillars of an effective anti-money laundering and combatting the financing of terrorism (AML/CTF) program for wealth management firms. Specifically, they should:
- Strengthen board and senior management (BSM) oversight and risk and control functions
- Conduct additional review and quality assurance testing
- Continue to exercise vigilance over high-risk customers and transactions
Board and Senior Management Oversight
MAS’ first pillar relates to BSM, ensuring they possess adequate oversight of high-growth areas and fully understand the ML/TF risks associated with the industry. Inherent risks that BSM should be apprised of include:
- When clients are offshore entities
- When clients have a large number of accounts across multiple jurisdictions
- The use of third parties
- The culture of confidentiality
Review and Quality Assurance Testing
The second pillar covers review and quality assurance testing, with a specific focus on the review of customer due diligence (CDD) measures to ensure they are functioning efficiently and are commensurate with the company’s risk appetite and client risk scores.
Control areas relating to the identification of high-risk customers and the verification of a customer’s source of wealth (SOW) and source of funds (SOF) are highlighted as areas that should undergo enhanced quality assurance testing. Where these controls are deemed inadequate, firms are reminded to improve their practices and ensure high-risk customers are identified for closer scrutiny.
High-Risk Customers and Transactions
Finally, to stay vigilant against high-risk customers and transactions, MAS advises firms to:
- Be aware of the added ML/TF risk when dealing with legal structures (e.g., trust arrangements, insurance wrappers, and family offices) that are established for the benefit of the beneficial owners
- Take note of prospective customers that withdraw their applications due to an inability or unwillingness to provide the required CDD information. Firms should also consider the need to file a suspicious transactions report (STR) in such cases
- Remain watchful during ongoing monitoring of unusual transaction spikes and unexpected fund flows with third parties, especially to or from high-risk jurisdictions
In August and September 2022, MAS issued similar AML/CFT guidance for external asset managers and the private banking sector respectively. Both sets of guidance echo MAS’ circular, highlighting the main compliance areas in need of improvement: governance, risk assessment frameworks, CDD, enhanced due diligence (EDD), and reporting obligations.
Wealth Management in Singapore
According to Deloitte’s international wealth management center rankings 2021, Singapore ranked second in competitiveness after Switzerland. MAS’ aim of becoming Asia’s center for philanthropy speaks to this competitiveness, a goal the agency plans to achieve through building impact monitoring solutions, philanthropy advisory competencies, and innovative philanthropy models.
However, the circular doesn’t fail to note the high exposure wealth management firms have to ML and TF owing to certain client attributes, the size of transactions, and the complexity that is often involved in managing wealth. One such case was discovered as part of the Pandora Papers investigation, which involved Herman Gref, the chief executive of Sberbank, Russia’s biggest bank. According to the documents, in 2015, Gref utilized an offshore operative in Singapore to restructure a $75 million family trust with links to multiple offshore companies. It was also revealed that Gref met with the head of a Singapore-based firm that specialized in offshore financial services.
In 2018, the Singapore firm was audited and irregularities were found in the way high-risk clients were handled. Following concerns over a lack of documentation, the firm closed Gref’s trust and some of his companies. However, at the same time, the firm helped Gref set up another shell company based in Samoa.
Firms connected with the wealth management sector should review MAS’ guidance and implement changes to their AML/CFT program where gaps or inefficiencies are found. For more information on how to comply with Singapore’s AML regime, compliance teams should review our 7 Tips To Help Fintechs Comply With Anti-Money Laundering In Singapore.
State of Financial Crime Report 2023
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