||Asean Affairs 15 July 2013
ABS Financial Crime Seminar 2013
A Comprehensive AML/CFT Regime
In recent years, financial crime-related issues involving financial institutions have increasingly made global media headlines. Criminal activity has become more sophisticted with innovations in financial products and services, and the ease with which assets are moved across borders. In response, the international community has made concerted efforts to combat financial crime.
The Financial Action Task Force (FATF), the global standard setter in the fight against money laundering and terrorist financing, has revised its recommendations to require stronger safeguards in the financial sector and improved international cooperation. Leaders at the recent G8 Summit also pledged to clamp down on money laundering and tax-related crimes.
Singapore is fully committed to working with the international community to fight trans-national crimes. Like any international financial centre, we recognise that Singapore is vulnerable to being used as a conduit for illicit funds. We pro-actively manage this risk by putting in place a comprehensive regime for anti-money laundering (AML) and countering the financing of terrorism (CFT) :
One, we ensure that the legal and regulatory framework on AML and CFT, including our exchange of information (EOI) regime, keeps pace with evolving global standards
Two, we have a rigorous regime of supervision that is designed to be preventive in nature
Three, we work in collaboration with industry to achieve our common objective of keeping the financial centre clean
A robust legal and regulatory framework
Let me begin with our legal and regulatory framework. Singapore’s AML/CFT regime was evaluated in 2008 by FATF. FATF assessed that Singapore operates a strict and rigorous AML/CFT regime, centred on a comprehensive and sound legal, institutional, policy and supervisory framework.
The FATF assessors concluded that Singapore’s AML/CFT sanctions regime is effective, proportionate, and dissuasive. On the tax front, the Global Forum on Transparency and Exchange of Information for Tax Purposes1 assessed Singapore’s EOI regime in February this year and affirmed that our regime is in line with international standards.
Following these assessments, Singapore has made and will be making further revisions to our legal and regulatory framework, in step with the strengthening of international AML/CFT standards. Let me cite three examples.
First, the MAS Notices and Guidelines on AML/CFT have been updated twice, in 2009 and earlier this year, in alignment with evolving standards set by FATF and other relevant global standard setters such as the Basel Committee on Banking Supervision.
The amendments include extending the requirement for enhanced customer due diligence to domestic politically exposed persons, and a new requirement for board members of financial institutions to undergo AML/CFT training.
The MAS Notices give force to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, or CDSA, which is the key money laundering legislation in Singapore. The number of predicate money laundering offences in the CDSA itself has been increased from 335 in 2008 to 424 to mitigate new and aggravated threats.
Second, Singapore has designated tax crimes as money laundering predicate offences with effect from 1 July this year. With the designation, financial institutions must apply the full suite of AML/CFT measures contained in the MAS Notices to guard against the laundering of proceeds from serious tax crimes.
This involves the conduct of rigorous customer due diligence and transactions monitoring as well as proper reporting of suspicious transactions.
This is a clear message that Singapore neither wants nor will tolerate such illicit flows.
Third, Singapore is significantly strengthening its framework for international cooperation to combat cross border tax offences.
Singapore is making legislative amendments to extend EOI assistance in accordance with internationally agreed standards to all our existing tax treaty partners, without having to update individual bilateral tax agreements.
Singapore has also signed the Convention on Mutual Administrative Assistance in Tax Matters, further expanding our network of EOI partners by 11 jurisdictions.
Taken together, these two changes will significantly increase the number of jurisdictions that Singapore will be able to exchange information with under internationally agreed standards.
But let me also emphasise that legitimate funds seeking to be managed out of Singapore for the stability, sound regulation, rule of law and conducive financial ecosystem that we offer, are most welcome. Singapore’s laws and rules will continue to provide safeguards for legitimate funds and reject tainted money.
A robust legal and regulatory framework by itself is not enough to address AML/CFT risks. It must be reinforced by effective supervision. Let me now elaborate on MAS’ supervisory approach.
AML/CFT risks are a significant component of the legal, reputational and regulatory risk of a financial institution that is assessed by MAS’ supervisors on an ongoing basis. MAS’ assessment is done through a comprehensive programme for each financial institution.
This includes on-site inspections; checks on the effectiveness of its governance and internal controls; tracking its business development; reviewing regulatory returns, audit, risk management and compliance reports; and regular engagements with key stakeholders such as board and senior management, risk management and compliance staff as well as internal and external auditors.
MAS’ approach to supervision is risk-based. Financial institutions deemed as having higher AML/CFT risks are subject to more intensive off-site surveillance and more frequent on-site inspections. In particular, financial institutions that allow their AML/CFT control framework to be compromised because of overly aggressive pursuit of revenue growth can expect to come under closer scrutiny from MAS.
In this regard, we expect the board and senior management of financial insitutions to play a key role in setting the right tone. In our supervision, MAS looks out for demonstrated commitment from the board and senior management in creating a strong culture that supports the operation of the right controls.
MAS dedicates significant resources to the supervision of AML/CFT risks.
From 2010 to 2012, a total of 108 AML/CFT on-site inspections were carried out on financial institutions. We note that financial institutions have enhanced their AML/CFT controls over the years, and most of them have a framework that is commensurate with the nature, size and complexity of their business activities.
While this is an encouraging progress, our inspections also show that some of our institutions can do better. MAS produces a report after each inspection with requirements for the financial institution to take action to remedy shortcomings identified within a specified timeframe.
Our report also includes recommendations on good practices that financial institutions should adopt. Financial institutions are required to provide MAS with progress reports on follow-up actions taken. For foreign-owned financial institutions, our inspection report is also shared with the institution’s head office and home supervisors.
MAS’ supervisory approach is designed to be preventive in nature. We have taken sanctions against financial institutions for weak AML/CFT controls, even if no predicate offence has occurred. Indeed, such sanctions account for most of MAS’ AML/CFT supervisory actions.
Over the last three years, MAS has imposed financial penalties on 22 financial institutions, issued a total of 47 warnings and reprimands, restricted the operations of 7 financial institutions and revoked or not renewed the licences of 13 money changers and remittance agents.
A few financial institutions were directed to appoint external consultants to conduct a thorough review of their AML/CFT frameworks or asked to increase resources dedicated to this function.
In all cases, financial institutions had to demonstrate that deficiencies identified are effectively rectified. Through our supervision, we seek to identify potential risks at institutions at an early stage, and have these risks pre-emptively addressed before they become too serious and require supervisory intervention.
Working in Partnership with Industry
A robust regulatory framework reinforced by a rigorous and preventive supervisory regime are key imperatives in safeguarding the integrity of Singapore’s financial centre. But the industry too has a critical role to play.
There are areas where industry players like you are better placed to take the lead in proposing sound practices for adoption by the industry as you have knowledge of the ground.
I am pleased that the industry is pro-active on this front and has taken charge on several initiatives that meaningfully contribute to keeping Singapore a clean financial centre.
A laudable example of such industry-led initiatives is the Industry Sound Practices (ISP) launched earlier this year by the Private Banking Industry Group.
The ISP set out leading standards for private banks to detect and deter funds suspected of being proceeds from serious tax crimes.
I believe this may be the world’s first set of industry-developed guidelines aimed at safeguarding private banks from being used as a platform to harbour proceeds from serious tax crimes.
The Singapore Trustees Association has likewise published similar guidelines for its members.
ABS should also be commended for its efforts to enhance AML/CFT standards in the industry. Training programmes and workshops organised by ABS help in building up the capabilties of industry professionals.
Seminars such as today’s will raise industry awareness of the latest AML/CFT developments and typologies. These efforts will contribute to improved vigilance on the part of industry players in detecting potential suspicious or criminal activity.
MAS is fully committed to safeguarding the integrity of Singapore’s financial centre. Singapore will not tolerate the use of its financial system to conduct criminal activities. We have a robust and comprehensive AML/CFT regime that has served us well in preserving Singapore’s status as an attractive international financial centre.
21 But there is no room for complacency. Global connectivity and new technologies has resulted in criminals becoming more sophisticated in their attempts to launder the illicit proceeds of crime. As the first line of defence, the industry needs to continuously level up AML/CFT standards among its staff to effectively frustrate such attempts. On our part, MAS will continue to support and partner the industry on initiatives to keep Singapore a clean financial centre. On that note, I wish you a fruitful seminar.
SPEECH BY MR LEE BOON NGIAP, ASSISTANT MANAGING DIRECTOR, MONETARY AUTHORITY OF SINGAPORE, AT ABS FINANCIAL CRIME SEMINAR 2013, 12 JULY 2013, 9:30 AM AT FAIRMONT BALLROOM, RAFFLES CITY CONVENTION CENTRE, SINGAPORE