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Singapore – MAS Information Paper on Guidance on Private Banking Controls.

10 July, 2014

 

 

In mid-June 2014, the Monetary Authority of Singapore (“MAS”) issued an information paper (“Information Paper”) to give guidance to financial institutions (“FIs”) on the policies, procedures and controls required for their private banking business in three areas:

 

  • Anti-money laundering and countering the financing of terrorism (“AML/CFT”); 
  • Fraud risk prevention; and
  • Investment suitability.


The purpose of the Information Paper is to help FIs identify gaps and further strengthen their controls and risk management.


This update sets out the salient points of the Information Paper. In the Appendix to this update, we have provided, for easy reference, a summary of the sound practices and attention areas (where applicable) that MAS highlighted in the Information Paper.

 

A. AML/CFT

 

The Information Paper focuses on five areas related to AML/CFT which are intended to address money laundering and terrorism financing (“ML/TF”) risks:

 

  • Customer on-boarding/acceptance;
  • Ongoing monitoring;
  • Use of financial intermediaries;
  • Suspicious transaction reporting; and
  • Wire transfers.

 

The highlights of the guidance for each area are as follows:

 

  • Customer on-boarding/acceptance: FIs should subject higher-risk accounts, including those of politically exposed persons (“PEPs”), to more extensive due diligence as well as closer and more proactive monitoring. 
  • Ongoing monitoring: FIs should conduct robust and comprehensive periodic reviews and ongoing monitoring to facilitate the detection of unusual transaction patterns and changes in customer circumstances which are undesirable or increase ML/TF risks. 
  • Use of financial intermediaries: FIs should establish adequate policies and procedures to guide FIs’ dealings with financial intermediaries, so as to reduce the legal and reputational risks that can arise. 
  • Suspicious transaction reporting: FIs should maintain comprehensive and accurate records of internal assessments vis-à-vis rejected potential customers, regardless of whether suspicious transaction reports (“STRs”) are eventually filed. 
  • Wire transfers: FIs should be fully aware of relevant details relating to all incoming and outgoing wire transfers and establish appropriate procedures to address wire transfers with incomplete information. 


B. Fraud Risk Controls


The Information Paper notes that there is scope for improvement in the fraud risk controls that FIs have established. In particular, the MAS raised the following concerns:

 

  • the processes detailing who, when and how call-backs are performed vary across FIs and affect the effectiveness of call-backs in mitigating fraud risks; 
  • the quality and effectiveness of measures taken to mitigate vulnerabilities of hold-mail and inactive/dormant accounts also differ across FIs; and 
  • independent control over static data was not always established.

 

The highlights of the guidance for each area are as follows:

 

  • Enhanced authentication of customer instructions: FIs which use a risk-based approach for call-back procedures should use other processes and procedures to detect deliberate acts of circumvention. FIs should also use information technology to enhance the timely detection of unauthorised funds withdrawals and transactions. 
  • Hold-mail services: FIs should not offer hold-mail services except in exceptional circumstances and upon request by customers. Due care should be exercised in assessing the reasonableness of the “exceptional circumstance” of each case and the customers’ basis for requesting hold-mail services. 
  • Inactive/dormant accounts: Before inactive/dormant accounts are reactivated, FIs should subject the authenticity of the customer-initiated instruction and/or transaction to enhanced independent verification procedures.
  • Customer static data: FIs should have a central record of customers’ contact information, with the maintenance of such records being performed or reviewed by parties independent of the front office. 


C. Investment Suitability


The Information Paper notes that is room for improvement in implementing policies and procedures to promote good selling practices and controls on investment suitability. In particular, the MAS observed that although relationship managers (“RMs”) discuss with their clients on their investment portfolios and suitability, these discussions are not always well-documented, which exposes FIs to legal and reputational risks.


The highlights of the guidance for the three areas concerning investment suitability are as follows:

 

  • Customer profiling: FIs should ensure that RMs thoroughly understand, properly analyse and document their customers’ preferences. 
  • Product classification: FIs should devote sufficient attention and resources to implement an appropriate product risk classification framework and ensure that assessments are properly performed. 
  • Advisory and sales process: FIs should have proper sales and advisory processes that complement and leverage on their customer profiling and product risk classification frameworks. FIs should also instil good selling practices in RMs so that they can discharge their duty of care properly and to meet customers’ goals and constraints. 


Conclusion


The Information Paper is a comprehensive and practical guide primarily for private banks concerning three areas of key risks (AML/CFT, fraud and suitability) of their business. The Information Paper mentions that whilst the primary target is private banks, “many of the sound practices are also relevant for other client-facing businesses of financial institutions.”


The Information Paper also adopts a risk-focused approach, stating at the outset that the guidance in the report “should be applied in a risk-based and proportionate manner, taking into account the size, nature and complexity of the business of each financial institution.”


It is important to note that the contents of the Information Paper do not have the force of law, nor do they supersede any laws or regulatory requirements.


In summary, the Information Paper sets out MAS’ regulatory expectations on banking controls, though private banks should be able to justify departures from these suggested practices, where appropriate, on the basis of the size, nature and complexity of their businesses.

 

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For further information, please contact:

 

Chong Huat Tan, Partner, RHTLaw Taylor Wessing 

chonghuat.tan@rhtlawtaylorwessing.com


Nizam Ismail, Partner, RHTLaw Taylor Wessing 
nizam.ismail@rhtlawtaylorwessing.com

 

RHTLaw Taylor Wessing Banking & Finance Practice Profile in Singapore

 

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