AML POINTS EVERY WEALTH MANAGEMENT FIRM MUST NOTE
In a 3 March 2022 circular, the MAS reminded firms to stay vigilant to money laundering and terrorism financing (ML/TF) risk in the wealth management industry. This recent reminder follows past numerous AML guidance by MAS to wealth management firms such as “Effective AML/CFT Controls in Private Banking” issued on 4 September 2020 and an information paper on “Strengthening AML/CFT Practices for External Asset Managers” issued on 24 August 2022.
The MAS viewed the wealth management sector as having inherently higher exposure to ML/TF risks due to its client attributes, size of transactions and the complexity typically involved in managing such wealth. Wealth management is thus an area of MAS’ supervisory focus, with several thematic engagements and inspections of FIs’ wealth management businesses to ensure tey have robust controls to effectively detect and deal with ML/TF risks.
As their wealth management business grows, MAS stated that it expected firms to identify high growth areas (meaning segments in which a firm has seen materially increased demand for instance based on the number of new accounts opened or the size of fund flows) and act to ensure that there are adequate controls to deal with key and emerging ML/TF risks such as tax evasion- and corruption-related risks posed.
Specifically, the MAS encouraged firms to:
1. Strengthen board and senior management (BSM) oversight of high growth areas and its awareness of ML/TF risk posed
MAS advised BSM to ensure:
- It was updated of potential ML/TF risks arising from high growth areas including on the results of quality assurance reviews and testing done to validate the effectiveness of AML/CFT controls in high growth areas.
- That risk and control functions were adequately resourced and familiar with changes in business strategy or target customer segments to effectively monitor the ML/TF risk profile of high growth areas identified and could pose an effective check and balance to front-line functions
2. Conduct additional reviews of customer due diligence (CDD) practices in high-growth areas, ensure front-line and control functions were functioning effectively and add quality assurance testing on key controls
MAS stated that firms should review their CDD practices in high growth areas and 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 customers’ wealth and source of funds. Should existing CDD practices be found to be inadequate to deal with specific risk characteristics in high growth areas, FIs should promptly enhance their existing CDD practices to address the specific risks noted and ensure that higher risk customers continue to be identified for closer scrutiny.
3. Stay vigilant towards higher risk customers and transactions
MAS asked firms to:
(a) Be cognizant of added ML/TF risk when dealing with legal structures/arrangements used for the purpose of wealth management e.g. trust arrangements, insurance wrappers and family offices. Firms should make in-depth enquiry to clearly understand the purpose of the legal structure/arrangement used and assess if there is a clear and legitimate purpose for the use of complex structures/arrangements and the commensurate ML/TF risks. In particular, firms should seek to adequately understand and identify key controllers behind the structures/arrangements used, beyond determining the legal owner of the entity. FIs should also conduct appropriate checks to independently corroborate the source of wealth and funds of the legal structures/arrangements and the beneficial owners. They should also conduct appropriate checks to independently corroborate the source of wealth and funds of the legal structures/arrangements and the beneficial owners
(b) Have processes to monitor for prospective customers that withdraw their applications due to an inability or unwillingness to provide requisite CDD information. Firms should also consider the need to file a Suspicious Transactions Report for such cases.
(c) 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. FIs should also be vigilant to related party transactions to detect risks associated with insider trading or anomalous commingling of business and personal funds.
MAS’ focus on ML/TF risks in wealth management firms is clear, with its continued focus on inspections and issuance of guidance on robust controls that MAS wishes to see in firms.
Should you require assistance in ensuring that your business is compliant with MAS’ standards, engage a specialist service provider like Integrity Consulting. We are a compliance consulting firm that also offers AML consulting services, ensuring that your business meets the necessary regulations and standards set by MAS. For more information, visit https://integrity-consult.com/ to learn how we can help you remain compliant and up-to-date.