On 3 March 2023, the Monetary Authority of Singapore (MAS) issued the circular, Money Laundering and Terrorism Financing (ML/TF) Risks in the Wealth Management (WM) Sector, reminding financial institutions (FIs) to remain vigilant and ensure that their current controls can mitigate such risks. 1
Singapore’s WM sector has grown significantly, with an exponential growth of HWNIs and its corresponding demand for WM services. To support this growth, MAS partnered with Singapore’s Economic Development Board (EDB) to establish the Family Office Development Team in 2019, with the aim of promoting growth and development of the family office industry.
Subsequently in 2020, MAS introduced the Variable Capital Company investment structure to encourage private equity firms, fund managers, and family offices to establish funds in Singapore rather than offshore jurisdictions. This initiative is aimed at attracting more investment into Singapore's financial markets and strengthening its position as a leading Asian and global WM hub.
With significant growth comes risks. The sector’s client attributes, including the high-value transactions and the complex nature of managing such wealth, makes it more susceptible to ML threats.
To address these risks, MAS’s recent circular recommends that FIs take steps to verify the legitimacy of client transactions and WM fund flows into the country.
Specifically, supervisory expectations in key control areas were set out, requiring FIs to be vigilant and advising them to:
MAS also advises that FIs implement the following steps to establish an effective control framework:
For FIs, having stronger risk controls helps to lower the risks. To establish a robust control framework, we recommend that private banks and wealth managers:
This includes reviewing and testing the efficacy of risk control measures via more granular system tags, calibrated key risk indicators, and additional dashboards. The dashboards should be built to provide BSM a comprehensive picture of the high growth or risk business areas, encompassing all components like front-line behaviour, client behaviour, and future trends.
You should analyse the adequacy of such controls to identify control gaps for remediation and equitable owners to ensure BSM oversight. We also advise regular sampling of client particulars (CDD, SOW) to test the efficacy of AML/CFT control points.
You should review the CDD procedures to ensure that there are triggers for EDD attached to high growth areas. BSM should be aware of the adequacy of such measures when dealing with complex ownership structures.
You need to set up a client risk review committee such that the BSM is made aware of any inherent risks associated with new clients and the BSM is equipped with the information it needs to be cautious of ‘undesirable clients’ and take measures to monitor the transactions between these clients and existing clients post onboarding.
NLA coupled with the use of data analytics can help drive deeper insight into complex structures and cross client interactions for better risk management.
Speak with our experts to find out more about the industry’s best practices and what your organisation should do to ensure adherence to regulatory requirements and effective risk management.
1 Money Laundering and Terrorism Financing (ML/TF) Risks in the Wealth Management Sector (MAS, 3 March 2023).