Establishing the sources of wealth of customers – MAS issues new circular
We have set out below the key points addressed in this communication. In addition, you can read the full circular update here.
Who does this update apply to?
The scope of the new updates is applicable to Financial Institutions (“FIs”) in the wealth management sector. Please note that the term “customers” refers to both the clients of wealth management businesses and their beneficial owners.
Risk-proportionate approaches for Financial Institutions
In establishing the SOW of customers, FIs should not apply a ‘one-size-fits-all’ approach for all its customers. Instead, FIs should ensure that its policies and procedures are risk proportionate and reasonable, taking into account the unique circumstances and profile of each customer.
MAS has set out the following risk principles that FIs should consider:
Materiality
- FIs should seek to obtain information on the customer’s entire wealth to the extent practicable
- the primary goal is to determine the SOW that are more material or higher risk
- MAS recognizes that it may not be possible or practical to corroborate some SOW, particularly those from many years ago where documentation may no longer be available
- in lieu of this, FIs should:
- focus on corroborating the SOW that are more material or higher risk
- asses whether the residual risk of the uncorroborated wealth is acceptable to the FI
- implement additional risk-mitigating measures if the uncorroborated wealth poses an unacceptable risk.
Prudence
- FIs should use reliable third-party corroboration material to establish SOW, such as audited accounts and documents issued by independent third parties, for example, tax accountants
- any benchmarks or assumptions used must be reasonable, relevant, and appropriate for the customer
- the rationale for benchmarks/assumptions should be documented and reviewed
- benchmarks/assumptions should not be used to support suspicious SOW explanations.
Relevance
- FIs should focus on obtaining the most relevant corroborative documents, exercising reasonable judgment
- where possible, FIs may leverage on independent and reliable public sources to corroborate SOW, rather than solely relying on customer-provided evidence.
Importance of SOW establishment in AML/CFT controls
FIs should note that SOW establishment is part of a broader framework of AML/CFT controls. As such, senior management should:
- exercise close oversight over higher risk accounts – for example being unable to corroborate significant portion of customer’s wealth
- ensure that ongoing monitoring controls take into account the customer risk profile.
How can Waystone Compliance Solutions help?
Our dedicated team of APAC compliance professionals has extensive experience in navigating the complexities of regulatory compliance in Singapore. If you require more information on this topic or would like to find out how this could impact your business, please reach out to your usual Waystone Compliance Solutions representative or contact us below.