6 May, 2015
Introduction
On 24 April 2015, the Monetary Authority of Singapore (“MAS”) released a series of revised notices relating to anti-money laundering and countering the financing of terrorism, namely:
(a) MAS Notice 626 relating to Banks
(b) MAS Notice 1014 relating to Merchant Banks
(c) MAS Notice 824 relating to Finance Companies
(d) MAS Notice 3001 relating to Holders of Money-Changer’s Licence and Remittance Licence,
(e) MAS Notice 314 relating to Direct Life Insurers
(f) MAS Notice SFA04-N02 relating to Capital Markets Intermediaries
(g) MAS Notice SFA13-N01 relating to Approved Trustees
(h) MAS Notice FAA-N06 relating to Financial Advisers
(i) MAS Notice TCA-N03 relating to Trust Companies
(j) MAS Notice PSOA-N02 relating to Holders of Stored Value Facilities
(k) MAS Notice 626A relating to Credit Card or Charge Card Licensees
This Update discusses the revised MAS Notice 1014 (the “Notice”) relating to merchant banks (the “FIs”). Broadly speaking, the other revised Notices make similar changes to the pre-existing MAS Notices. The key additions and amendments which have been made to the Notice will be highlighted in this update.
Assessing Risks And Applying A Risk-Based Approach
In addition to assessing the money laundering and terrorism financing (“ML/TF”) risks presented by an individual customer, the Notice now requires an FI to identify and assess ML/TF risks on an enterprisewide level, which shall include a consolidated assessment of the bank’s ML/TF risks that exist across all its business units, product lines and delivery channels.
An FI should incorporate the results of the Singapore National Money Laundering and Terrorist Financing Risk Assessment Report 2013 (“NRA Report”) into its enterprise-wide ML/TF risk assessment process. The NRA Report has identified certain sectors and prevailing crime types which present higher ML/TF risks. An FI should consider the NRA Report when assessing its enterprise-wide ML/TF risk profiles of customers, products, services, transactions and delivery channels.
After an FI has identified the ML/TF risks it faces as an institution, it is required by the Notice to take commensurate steps to mitigate such risks effectively. An FI must assess the effectiveness of its risk mitigation procedures and controls by monitoring a variety of metrics, such as its ability to identify changes in a customer profile and transactional behaviour, and to monitor the coordination between its compliance department and its other departments. An FI is also required to document its enterprise-wide ML/TF risk assessment information, and ensure that such information is available to MAS upon request.
Under current MAS guidelines, an FI is required to review its risk assessment at least once every two years or when “material trigger events” occur, whichever is earlier, in order to keep its enterprise-wide risk assessments up-to-date. “Material trigger events” include the acquisition of new customer segments and the launch of new products.
Reasonable Grounds For Suspicion In Relation To Prospective And Existing Customers
With regard to customer due diligence (“CDD”) measures, the revised Notice has clarified the obligations of an FI when it has reasonable grounds to suspect that its prospective or existing customer is involved in ML/TF activities.
In the case of a prospective customer, an FI shall not establish business relations with or undertake a transaction for a customer where the FI has reasonable grounds to suspect that the funds of the customer are connected with ML/TF activities. In addition, the FIs are required to file a suspicious transaction report, a copy of which shall be extended to the MAS for information.
In the case of an existing customer, if an FI considers it appropriate to retain a customer even though it has reasonable grounds to suspect that existing business relations with the customer is connected with ML/TF activities, the FI is required to substantiate and document the reasons for retaining the customer and to subject the customer’s business relations to commensurate risk mitigation measures, including enhanced ongoing monitoring. If the FI assesses the customer to be of higher risk, it shall perform enhanced CDD measures, including obtaining the approval of the FI’s senior management to retain the customer.
In addition to the existing categories of cases where CDD has to be performed, the Notice has instituted a new category – when an FI effects or receives any funds by domestic wire transfer, or by cross-border wire transfer which exceeds SGD 1,500, for any customer who has not otherwise established business relations with the FI.
Identification And Verification Of Identity Of Beneficial Owners
The revised Notice gives further information on the cascading measures FIs need to undertake when identifying and verifying the identity of beneficial owners of legal entities and legal arrangements. When dealing with legal entities, the Notice requires an FI to identify the natural persons who ultimately own the legal entity, those who have ultimate control of the legal entity or those who have executive authority in the legal entity. With regard to legal arrangements, the Notice requires an FI to identify the trustees, settlors, beneficiaries, protectors and any natural person exercising ultimate ownership or control over the trust, and persons in equivalent positions for other types of legal arrangements.
Customer Screening
The revised Notice has also clarified existing expectations for FIs to conduct customer and related parties screening. An FI is required to screen a customer, natural persons appointed to act on behalf of the customer, connected parties of the customer, beneficial owners of the customer and wire transfer originators and beneficiaries against relevant ML/TF information sources, including information and lists provided by the MAS and other relevant authorities in Singapore. Screening should be done at the point of establishing a client relationship and on an ongoing basis. The FI should consider its customers’ risk profile in determining the frequency of periodic screening.
Wire Transfers
The revised Notice has outlined the requirements when effecting or receiving funds by wire transfer as an ordering institution, beneficiary institution or an intermediary institution. The threshold for enhanced measures in relation to cross-border wire transfers has also been lowered from SGD 2,000 to SGD 1,500.
Other Amendments
The Notice has also clarified the risk assessment and mitigation requirements in relation to new products, practices and technologies, requirements for enhanced CDD measures on certain types of customers, requirements for FIs who rely on third parties to perform CDD, requirements concerning the keeping of records of CDD information and of transactions, as well as requirements for FIs incorporated in Singapore to develop and implement group policies and procedures for its branches and subsidiaries to share CDD and ML/TF risk management information.
Conclusion
The relevant FIs should review the Notice carefully and consider whether systems and processes have already been or can be put in place to ensure compliance with the Notice. One of the foremost tasks will be to undertake an enterprise-wide assessment, taking into consideration the results of the NRA Report.
For further information, please contact:
Yew Fei Lai, Partner, Rajah & Tann
yew.fei.lai@rajahtann.com
