MAS engages eight banks in AML/CFT policymaking in latest ACIP partnership

The Monetary Authority of Singapore’s (MAS) recent partnership with banks and law enforcement agencies demonstrates its continuous efforts in further strengthening the country’s capability in combating money laundering and terrorism financing risks.

Known as the Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership (ACIP), the first-of-a-kind collaboration is considered significant as it brings together MAS, the Commercial Affairs Department of the Singapore Police Force (CAD), other government entities, the Association of Banks in Singapore (ABS) and, most tellingly banks in identifying, assessing and mitigating money laundering and terrorism financing risks faced by Singapore.

Help in policymaking

APIC is the latest initiative that reflects a general push by Singapore regulators across different industries to engage the players and involve them in policymaking, said Daniel Chia, partner at Morgan Lewis Stamford in Singapore. The idea is to produce information, best practices, templates and studies which the industry can share.

“It is a huge task for the government to do it [AML/CFT initiatives], but if it puts together industry players to come out with the best practices, amongst others, it is easier to carry out these tasks. MAS is also trying to get legitimacy across the industry by getting the banks involved,” he said.

Instead of the conventional practice of having regulators identify the risks, design policies and implement the rules, engaging banks at the outset will help MAS to be more pragmatic in its policymaking, said Lem Chin Kok, partner in charge of the financial crime practice at KPMG in Singapore.

Involvement of eight banks striking

The involvement of eight banks, comprising the three local banks (DBS Bank, Oversea-Chinese Banking Corporation, United Overseas Bank) and five foreign banks (BNP Paribas, Citibank, HSBC, Standard Chartered Bank and UBS) is particularly striking and has been welcomed by the industry.
“It is good for the industry to be involved, especially when banks are at the forefront of typology, new fund flows and new cases,” said Stephanie Magnus, principal, financial services at Baker McKenzie Wong & Leow in Singapore.

The involvement of banks was important insofar as identifying risk, sharing of information and risk mitigants were concerned, Magnus said. Getting banks involved will help regulators to better understand some of the concerns including how financial crime takes place, how criminals use financial institutions as conduits for fund flows and what kind of entities and structures are used to facilitate fund flows, all of which reflects the type of typology used by criminals.
Information sharing

The ACIP collaboration also has the benefit of information sharing, according to Jason Tan, director, AML and sanctions services team at KPMG in Singapore. The fact that banks in Singapore are bound by banking secrecy means that their ability to share information with the industry — even when they spot suspicious transactions — is limited.

“Banks’ visibility on transactions is limited to those they undertake for their clients, and they do not have a full picture of the web of transactions. Once the fund leaves the bank and goes to another, the bank loses visibility of the transaction. Under the APIC partnership, the eight banks and MAS can explore ways to share information needed to remediate financial crime risks more effectively,” Tan said.

The involvement of industry players at a much earlier stage, rather than seeking their comments on consultation papers after they have been issued, is a “positive evolution”, Tan said.
“Getting the industry involved at an earlier stage allows regulators and banks to jointly assess any practical challenges in the implementation of new regulatory requirements,” he said.
APIC also seeks to promote dialogue between MAS and banks, according to Chia. For example, if the regulator proposes something on KYC which requires banks to put in a few million dollars in investment, they will be in a better position to tell the regulator whether or not such proposals are useful.

Eight banks represent a good cross-section of banking business
MAS said in its press release on April 24 that the steering group members, which comprise the eight banks and ABS, may be expanded or rotated. The steering group members have been appointed for an initial tenure of two years.

It is unclear on what basis the eight banks were selected but the banks appointed as steering group members appeared to represent a good cross-section of the banking business, Chia said.
Aside from the three local banks, whose inclusion in the steering group was almost inevitable, Citibank, HSBC and Standard Chartered were likely to have been selected on the basis of their strong retail and private banking presence in the city-state.

UBS and BNP Paribas represent the investment banking and trade finance businesses respectively. Trade finance was under regulators’ radar last year as an upcoming money laundering trend, Chia said.

Various working groups to address areas of concern

The banks are in the process of forming various working groups to address the different risk areas in AML/CFT, according to Magnus, but she declined to disclose further details.
Lem said the eight banks were likely to have been asked to take ownership of different AML topics and carry out research which may eventually require a reduction in risk, a need for certain processes to be put in place, or a change in regulation, for instance.

“I would think that the whole purpose of ACIP is for the regulator and banks to come together to understand in detail the financial crime risks, and identify how these risks should be dealt with effectively. They will then work backward so that they will know what kind of policies and infrastructures will be required,” he said.

Some of the areas which the ACIP group is likely to address are those highlighted by the Financial Action Task Force (FATF) in its assessment of Singapore, which include money laundering risk in trade finance and the opaqueness of beneficial ownership, according to Lem.
The ACIP group, Lem said, could also look into whether technology has been effectively deployed in mitigating financial crime risks. He raised concerns about how certain existing technology had diverted scarce resources, including human resources, away from dealing with real financial crime issues.

“For instance, if transaction monitoring systems generate 99 percent of alerts which are false positives, this means that 99 percent of the scarce resources are allocated to deal with the false positives instead of real financial crime issues. Financial institutions need to really understand technology better and find ways to leverage technology to reduce cost and increase effectiveness,” he said.

In response to FATF’s recommendations

Industry observers said the multi-party collaboration was being pursued largely in response to FATF’s recommendations following
its assessments of Singapore’s AML regime in November 2016. In its recommendations, FATF pointed out the lack of sufficient cooperation among different regulatory authorities in Singapore in prosecuting terrorist financing and it encouraged greater cooperation among the local authorities.

“That’s probably an impetus for MAS and CAD to work even closer together,” Tan said.
FATF’s recommendations also included the need to carry out a further national risk assessment, which it has recommended that every country conducts. Singapore carried out its last national risk assessment in 2013, jointly conducted by MAS and CAD, along with the Ministry of Home Affairs and the Ministry of Finance. The result was announced in 2014.

“Certainly Singapore has to think about doing another national risk assessment,” Magnus said.
ACIP formalises MAS and CAD relationship

Aside from formalising their relationship through ACIP, MAS and CAD would also want to have their fingers on the pulse of new AML/ CFT trends, Chia said.

“MAS and CAD want to have a close relationship with the industry so that they can react faster,” he said.

Published 03-May-2017
 Patricia Lee, Regulatory Intelligence

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