Key Aspects

• The AMLD Circular 08-2024  issued on July 26, 2024, addresses the importance of Singapore as a financial hub and the critical role of financial institutions (FIs) in preventing illicit financial activities by managing wealth for high-net-worth individuals.
• It outlines the requirement for FIs to establish the sources of wealth (SOW) of their customers to ensure the legitimacy of assets, emphasizing the need for corroboration with independent and reliable sources.
• The circular details the risk-proportionate measures and principles (Materiality, Prudence, and Relevance) that FIs should follow, ensuring that they focus on significant or higher-risk sources of wealth and use appropriate corroborative evidence.

On 26 July 2024, the Monetary Authority of Singapore (MAS) issued AMLD Circular 08-2024 addressing the critical need for financial institutions (FIs) to establish the sources of wealth (SOW) of their customers. This circular comes in response to Singapore's growing reputation as a premier financial center for high-net-worth individuals seeking wealth management services. With this status comes the responsibility for FIs to act as vigilant gatekeepers, ensuring that the funds flowing into Singapore are legitimate and free from the risks associated with money laundering and terrorism financing.

Importance of Establishing Sources of Wealth

The circular emphasizes the necessity for financial institutions to establish the sources of wealth of their customers before entering into business relationships. This process involves not only gathering information from customers but also independently corroborating this information against documentary evidence or reliable public sources. Such measures help FIs to better understand their customers and assess the legitimacy of their assets. This, in turn, supports ongoing monitoring efforts, helping to guard against the risks of dealing with potentially illicit assets.

Risk-Proportionate Measures and Principles

In outlining the implementation of these measures, the circular highlights the importance of adopting a risk-proportionate approach. Financial institutions are advised to avoid a one-size-fits-all strategy, instead tailoring their policies and procedures to the specific risks and profiles of each customer. The circular details three key principles that should guide FIs in establishing the SOW:

1. Materiality: FIs should focus on obtaining information about the most significant or higher-risk portions of a customer's wealth, understanding that it may not always be possible to corroborate all sources, especially those from many years ago.
2. Prudence: When assessing significant sources of wealth, FIs should use reliable corroborative information, such as audited accounts or documents from independent third parties. This cautious approach ensures that the financial background provided by customers is plausible and credible.
3. Relevance: The evidence collected should be pertinent and fit-for-purpose, with FIs using their judgment to determine which documents are necessary for corroboration. This principle helps FIs balance thoroughness with practicality, avoiding unnecessary delays in customer onboarding.

Ongoing Monitoring and Senior Management Oversight

Establishing the SOW is part of a broader framework of anti-money laundering and countering the financing of terrorism (AML/CFT) controls. Senior management within financial institutions plays a crucial role in this framework, especially when it comes to higher-risk accounts. The circular calls for heightened oversight and potential risk-mitigating measures, such as enhanced transaction monitoring, for customers whose wealth sources cannot be fully corroborated.

Industry Collaboration and Conclusion

The MAS continues to support industry collaboration on these issues, welcoming ongoing efforts by the AML/CFT Industry Partnership (ACIP) to develop best practices in SOW establishment. This collaborative approach ensures that Singapore remains vigilant and proactive in addressing emerging risks in the wealth management sector.

In conclusion, AMLD Circular 08-2024 serves as a comprehensive guide for financial institutions in Singapore to strengthen their AML/CFT frameworks by rigorously establishing and verifying the sources of wealth of their customers. By following the outlined risk-proportionate measures and principles, FIs can better manage the risks associated with money laundering and terrorism financing, thereby maintaining the integrity and reputation of Singapore's financial system.