CUSTOMER DUE DILIGENCE AND KNOW YOUR CLIENT REQUIREMENTS IN SINGAPORE
The Monetary Authority of Singapore (MAS) – the country’s central bank and regulator of financial institutions (FIs) – has been active in recent months in issuing rules and guidance on anti-money laundering (AML) and countering the financing of terrorism (CFT). On 22 October 2015, MAS issued Guidance on AML and CFT Controls in trade finance and correspondent banking. This was followed by a set of amendment notices on 30 November 2015 directed at certain FIs on the prevention of money laundering and CFT. More recently, on 3 January 2016, a notice came into force, setting out requirements on customer identification and verification for the Central Depository (Pte) Limited (Depositary) – a clearing house for the Singapore securities market.
Guidance on AML and CFT Controls in Trade Finance and Correspondent Banking
In October 2015 guidance set out CDD requirements applicable only to banks, merchant banks and finance companies in Singapore that engage in trade finance and correspondent banking activities. They supplement existing CDD requirements under Singapore law. The guidance covers areas such as identifying trade-based financial crime risks and how to implement measures to mitigate such risks. Recommendations include obtaining further information on a transaction, performing due diligence to obtain such information such as details of commercial invoices and transport documents to ensure their validity.
In relation to higher risk correspondent banking activities, banks are advised to identify and perform name screening on beneficial owners, senior management and officers. Further, banks should implement processes to identify “nested” correspondent banking relationships, which include FIs using the bank’s direct correspondent relationship with a main FI to conduct transactions and obtain access to other financial services. Banks are also advised to implement ongoing monitoring and periodic due diligence, including reviews of recent transactions (over the last three months) to assess whether the transaction patterns are consistent with the counterparty’s profile and projected account activity.
Changes to the Customer Due Diligence (CDD) Requirements for Financial Institutions
Notices are a means by which MAS makes and enforces rules governing financial institutions. The amendment notices issued on 30 November 2015 apply to banks, merchant banks, finance companies, financial advisers and capital markets intermediaries and require the relevant FIs to implement additional CDD measures where they distribute life policies on behalf of a direct life insurer licensed under the Insurance Act. The additional CDD measures are in relation to the beneficiary of a life policy to ensure that the direct life insurer is able to establish the person’s identity upon payout. The Notices further reflect that FIs will no longer be exempt from the requirement to enquire if any beneficial owner exists in relation to a government entity customer – either Singaporean or foreign.
Notice on the Prevention of Money Laundering and CFT for the Depository
The 3 January 2016 Notice to the Depositary relates to due diligence on customers and persons associated with them. In addition to the existing measures, the Notice requires the Depositary to implement internal risk management systems, policies, procedures and controls in relation to current and past politically exposed persons, their family members and close associates.