After the 1MDB scandal erupted in 2015, MAS took unprecedented enforcement actions and conducted its most extensive AML review ever. As a result, certain banks were closed or slapped with financial penalties and prohibition orders were filed against individuals involved in the scandal.
Following these significant regulatory actions, AML compliance in the current climate deserves particular discussion.
The MAS’ emphasis on AML is clear from its previous thematic AML inspections and more recent establishment of dedicated AML and broader enforcement departments.
These moves signal more centralised resources toward AML rule-making and supervision coupled with a strengthening of the MAS’ enforcement capabilities.
Must-haves in AML compliance
For fund managers, the regulator’s AML regulations are in its 2015 notice and guidelines adhering to Financial Action Task Force (FATF) standards. In the pecking order of MAS regulatory instruments, notices are legally binding and must be followed strictly. However, fund managers will need to apply judgement based on criteria such as customer profile, risk assessments and nature of fund management business.
Fund management compliance must incorporate the following key elements in AML programs:
- Document a business-specific AML policy
- Institutionalise AML/client due diligence (CDD) procedures
- Obtain senior management approval for its AML program
- Conduct a biennial AML enterprise-wide risk assessment and AML training
- Establish an audit trail for CDD decisions
- Where CDD is operationally outsourced, establish oversight procedures
Resources and costs
For fund management firms, the complexities of AML regulations require careful application to specific situations.
For example, knowing the structure of your investor. If the investor is a fund or investment company managed by a primary manager such as a pension fund regulated for FATF-equivalent AML standards, CDD checks on beneficial owners may be exempt.
Another example is CDD risk assessments. Specific criteria has to be established for risks stemming from investor profile and jurisdiction.
Given the importance of AML and its regulatory nuances, fund managers should plan for appropriate resources. Dedicated internal AML teams are not common in fund management like they are in banks. They are not required as fund managers have relatively lower volumes of customer onboarding when compared to banks.
For small-medium fund managers, Singapore’s ecosystem offers fund administrators (only for day-to-day CDD checks) and advisors. However, oversight of outsourced CDD and compliance with all other prongs of an AML program, are more appropriately and economically handled internally by the fund manager.
Practically, that would mean assigning AML compliance to the compliance officer or if there is none, the COO or similar, together with support from external advisors, if needed.
Existing staff will have more duties. They will be moving away from a tick-the-box exercise to work through judgement-heavy areas like ongoing monitoring and enterprise-wide risk assessments.
It is also mandatory for fund management companies to have AML training to ensure that an AML program remains current vis-à-vis MAS regulations.
In conclusion, since the 1MDB scandal, the MAS has clarified that it has zero tolerance for money laundering. Its AML rules have kept pace with global standards such as those of the FATF, making it a regulatory leader in that space.
Damayanti Shahani is managing director of regulatory compliance consultancy Principium Consulting in Singapore
