The Monetary Authority of Singapore (MAS) has issued a circular providing further guidance to financial institutions (FIs) in the wealth management sector on the establishment of the sources of wealth (SOW) of their customers, including the risk principles that FIs should consider in the designing of their policies and procedures to establish SOW of their customers in a risk-proportionate and reasonable manner.
The circular, issued by MAS’s Anti-money Laundering Department, applies to FIs including those engaged in insurance, insurance brokerage, banking, trust business, capital markets services, financial advice, and payments.
The circular says that FIs in the wealth management sector play an important gatekeeper role in ensuring that fund flows into Singapore relating to their wealth management business are and remain legitimate. This is especially so, given that the wealth management business presents inherently higher money laundering and terrorism financing (ML/TF) risks due to its client attributes, size of transactions and the complexity typically involved in managing the wealth of high net-worth individuals.
MAS has issued several guidance papers to the industry over the past few years, setting out its supervisory expectations in key control areas, including the establishment of the SOW of customers and their beneficial owners. The new circular is intended to provide further guidance to FIs in the wealth management sector on the establishment of SOW of their customers before business relations with customers can be established.
Stipulations
The circular states that FIs should take appropriate and reasonable means to establish the SOW of their customers and independently corroborate information obtained from the customers against documentary evidence or public information sources.
Establishing the SOW of customers would (i) help FIs form a clearer understanding of their customers and the legitimacy of the customers’ assets; and (ii) inform the FIs’ ongoing monitoring of their customers’ transactions. This will help FIs and their staff guard against ML/TF and reputational risks of dealing with illicit assets.
FIs should ensure that their policies and procedures to establish the SOW of customers are risk-proportionate and reasonable, taking into account the unique circumstances and profile of each customer. They should not apply a one-size-fits-all approach for all customers. FIs may consider a range of measures to establish the SOW of customers, while minimising any undue delay to the onboarding of legitimate customers – for example, for customers with prominent public profiles, FIs may corroborate their representations on their SOW against reliable public information sources.
Principles
In the designing of their policies and procedures to establish SOW of customers in a risk-proportionate and reasonable manner, FIs should consider the following risk principles:
(a) Materiality: FIs should seek to obtain information on a customer’s entire body of wealth to the extent practicable with the primary outcome being to determine the SOW that are more material or of higher risk. While FIs should seek to understand customers’ total wealth and how it was acquired, MAS recognises that there may be situations where it may not be possible or practicable to corroborate some SOW, e.g. SOW from many years ago for which documents may no longer be easily available. In such cases, FIs should (i) focus on corroborating the SOW that are more material or of higher risk, and (ii) assess whether the residual risk of the uncorroborated wealth is acceptable to the FI and whether additional risk-mitigating measures are needed in the absence of corroboration;
(b) Prudence: For material SOW, FIs should attempt to use more reliable corroborative information, such as audited accounts or documents issued by independent third parties (e.g. tax accountants). If benchmarks or assumptions are used to (i) assess the plausibility of information received from customers, or (ii) to estimate a segment of a customer’s wealth in the absence of corroborative evidence, FIs should ensure that they are reasonable, relevant, and appropriate for the customer’s specific risk profile and circumstances.
The FI’s bases for the benchmarks and assumptions used should be documented and reviewed periodically. FIs should also bear in mind that benchmarks and assumptions should facilitate the assessment of the plausibility of the customer’s SOW, and should not be used to justify or support circumstances or explanations provided by the customer if there are reasons that cast suspicion on the SOW; and
(c) Relevance: FIs should seek to obtain pertinent, fit-for-purpose corroborative evidence to the extent practicable. In doing so, FIs should exercise reasonable judgment in determining which documents are critical for corroborating a customer’s SOW and which documents they may reasonably do without, e.g. documents from many years ago that may no longer be easily available and are not of high relevance to the generation of the customer’s wealth. Where possible, FIs may utilise independent and reliable documents and information obtained from credible public sources to support their assessment of customers’ SOW, without having to rely on customers to provide corroborative evidence.
Senior management should:
(a) Exercise close oversight over higher-risk accounts: For example, where an FI is unable to corroborate a significant portion of a customer’s wealth, the FI should escalate the case to its senior management for approval before establishing business relations with the customer and consider whether additional risk-mitigating measures are needed, such as enhanced monitoring of the customer’s transactions; and
(b) Ensure that ongoing monitoring controls take into account the customer’s risk profile: Ongoing monitoring controls should take into account customer information gleaned from SOW establishment, such as the customer’s total net worth and expected sources of funds, to facilitate the FI’s assessment of whether the customer’s account activities are in line with their profile.