Two best practice papers were released, one on SoW due diligence and the other on risks in the wealth management sector.
The Association of Banks in Singapore (ABS) has released two best practice papers to bolster the industry’s defenses against money laundering and other financial crimes in the wealth management sector, amid growing regulatory scrutiny and increasingly sophisticated illicit activities.
The papers, released on Wednesday (14 May), provide detailed guidance on conducting source of wealth (SoW) due diligence and managing risks specific to wealth management, a sector particularly vulnerable to misuse due to the large sums of money involved and the complex structures often employed.
Source of wealth
“ACIP Best Practice Paper on Source of Wealth Due Diligence” offers a framework for financial institutions to thoroughly investigate the origin of a client’s assets, going beyond traditional KYC checks. It emphasises the importance of understanding the client’s business activities, employment history, and investment strategies to identify any red flags.
The paper says SoW considerations should be integrated into the overall customer risk assessment process, i.e. not just assessing the risk of the customer, but also the risk associated with the origin of their wealth.
It offers guidance on gathering information and obtaining documentation, emphasising that the authenticity of documents should be verified and information provided by clients should be corroborated through independent sources.
The paper provides a list of red flags that may indicate illicit activity, such as inconsistent or evasive responses from clients, unusual or complex ownership structures, and transactions that lack a clear business purpose.
The paper also highlights the need for clear procedures for escalating suspicious cases, filing suspicious transaction reports (STRs), reviewing and updating SoW information, and monitoring client transactions for unusual or suspicious activity.
Wealth management risks
“ACIP Best Practice Paper on Risks in Wealth Management” outlines key risk areas in the sector, including the use of shell companies, nominee accounts, and complex investment vehicles to conceal the true ownership and source of funds (SoF). It provides guidance on implementing enhanced due diligence measures for high-risk clients and transactions, as well as ongoing monitoring to detect suspicious activity.
The paper offers guidance on identifying:
- higher-risk clients – e.g. based on factors such as politically exposure (PEPs), clients from high-risk jurisdictions, clients involved in high-risk industries like gambling or arms dealing
- products and services that are more susceptible to misuse -e.g. offshore accounts, trusts and foundations, private investment companies, bearer shares
- transactions that may be indicative of illicit activity – e.g. large cash deposits or withdrawals, wire transfers to or from high-risk jurisdictions, transactions involving shell companies or nominee accounts
The paper calls for more rigorous due diligence measures to be applied for high-risk clients, products and transactions – such as obtaining senior management approval for onboarding, conducting enhanced background checks on clients and beneficial owners, and verifying the SoF and SoW.
Guidance is also provided on implementation of robust transaction monitoring systems, use of automated alerts and manual reviews, regular review of client profiles and transaction history.
The paper emphasises the need for comprehensive training to staff in the wealth management sector on AML/CFT obligations, efforts to promote a culture of compliance, and clear lines of responsibility and accountability as part of a robust governance approach.
Mutual evaluation coming up
The release of the papers comes as Singapore has been stepping up its efforts to combat money laundering and terrorist financing ahead of a Financial Action Task Force (FATF) mutual evaluation commencing in June 2025.
Recent high-profile money laundering cases in the city-state have highlighted the need for enhanced vigilance in the wealth management sector, prompting regulators to increase scrutiny and impose stricter requirements on financial institutions.
The best practice papers were developed in consultation with industry experts and regulators, and are intended to complement existing regulations and guidelines. While not legally binding, they are expected to be widely adopted by banks and other financial institutions in Singapore.