The recent S$2.5 million penalty imposed by the Monetary Authority of Singapore (MAS) on Swiss-Asia Financial Services Pte. Ltd. (SAFS) for breaches of AML/CFT requirements underscores critical challenges faced by financial institutions. This case illustrates how rapidly expanding financial institutions can struggle to maintain robust anti-money laundering (AML) and countering the financing of terrorism (CFT) controls. As a seasoned compliance officer, it is essential that you reflect on the key issues highlighted by MAS and in what way external audits, such as those provided by Precision Comply, can strengthen an institution’s AML compliance framework.
Core AML/CFT Issues Identified
1) Enterprise-Wide Risk Assessment (EWRA) Inadequacies:
SAFS failed to incorporate all relevant risk factors in its EWRA. This fundamental oversight can expose institutions to heightened financial crime risks. A thorough and dynamic EWRA is crucial for identifying and mitigating potential AML/CFT threats effectively.
2) Incomplete Customer Due Diligence (CDD):
The practice of establishing business relationships before completing CDD measures is a significant vulnerability. Financial institutions must adhere to stringent CDD processes to ensure they fully understand their clients and associated risks before commencing any business relations.
3) Lack of Transaction Scrutiny:
SAFS did not adequately scrutinise third-party transactions, which were inconsistent with their knowledge of the customers. Consistent and thorough transaction monitoring is vital to detect and report suspicious activities promptly.
4) Failure to Identify High-Risk Customers:
Several customers with clear red flags were not identified as high-risk, and enhanced CDD measures were not performed. This lapse highlights the importance of recognising and responding to higher ML/TF risk indicators effectively.
5) Neglect in Reporting Suspicious Transactions:
SAFS failed to submit suspicious transaction reports despite having sufficient grounds. Prompt and accurate reporting of suspicious activities is a cornerstone of AML/CFT compliance.
6) Absence of Internal Audits:
Over a span of four years, SAFS did not conduct internal audits to assess the effectiveness of its AML/CFT controls. Regular internal audits are essential to ensure that compliance measures are both effective and evolving with the business.
The Role of External AML Audits
The SAFS case demonstrates the critical need for ongoing, independent audits of AML/CFT policies and procedures. Precision Comply, as an external party, can provide invaluable insights and assessments to ensure financial institutions not only meet regulatory requirements but also stay ahead of evolving risks. Our audits focus on:
1) Comprehensive Risk Assessments: Evaluating and enhancing EWRA frameworks to ensure all risk factors are considered.
2) Rigorous CDD Procedures: Ensuring CDD measures are thorough and completed before any business relationship is established.
3) Effective Transaction Monitoring: Implementing robust systems for scrutinising transactions and identifying inconsistencies.
4) Enhanced CDD for High-Risk Customers: Ensuring high-risk customers are correctly identified and subjected to rigorous CDD measures.
5) Timely Suspicious Activity Reporting: Establishing clear protocols for detecting and reporting suspicious activities promptly.
6) Regular Internal Audits: Conducting periodic internal audits to assess the effectiveness of AML/CFT controls and compliance with regulatory requirements.
Conclusion
Financial institutions, especially those experiencing rapid growth, must prioritise strengthening their AML/CFT controls. The MAS penalty on SAFS serves as a stark reminder of the consequences of inadequate compliance measures. By leveraging the expertise of external providers like Precision Comply, institutions can fortify their defenses against financial crime, ensuring robust and compliant operations in an increasingly complex regulatory landscape.
