MAS issues new AML/CFT notice for precious stones and precious metals activities and updates existing AML/CFT notices: Allen & Gledhill

9 March 2022

On 1 March 2022, the Monetary Authority of Singapore (“MAS”) issued a new anti-money laundering and countering the financing of terrorism (“AML/CFT”) notice for financial institutions (“FIs”) in the conduct of their operations and business activities in precious stones, precious metals and precious products (“PSM”) (“PSM Notice”), and revised the existing AML/CFT notices for FIs and variable capital companies (“VCCs”).

MAS published a consultation paper on 9 July 2021 seeking feedback on draft versions of the abovementioned notices. On 1 March 2022, MAS issued a response to the feedback received, stating that it has incorporated appropriate feedback received into the relevant notices, or will incorporate them into the relevant guidelines accompanying the notices.

Highlights of MAS’ response are set out below.

New AML/CFT notice for FIs dealing in PSMs

MAS proposed to issue a new notice for FIs dealing in PSMs to ensure consistency in the AML/CFT requirements across all FIs dealing in PSMs, instead of expanding the requirements in the existing AML/CFT notices to apply to the FIs’ PSM activities. MAS noted that respondents generally supported the proposal.

Definition of “regulated dealing”

In its response, MAS stated that the PSM Notice applies only when an FI itself conducts regulated dealing (i.e. buying PSMs from or selling PSMs to its customers) or is an intermediary in regulated dealing (e.g. an FI sells PSMs on behalf of its customer). MAS clarified that an FI facilitating its customers’ purchase and sale of PSM, which is understood to be the provision of financial services to customers that are involved with PSMs (i.e. processing of financial transactions, such as wire transfers, for a customer which is a PSM dealer), would not make an FI an intermediary in regulated dealing.

Customer due diligence requirements

MAS clarified that FIs are not required to designate separate accounts for each specific business activity of their customers. Thus, an FI may use the same account for both regulated dealing and other business activities of a customer, if that is in line with its policy, procedures and business considerations.

MAS also clarified that the requirement for FIs to perform the customer due diligence (“CDD”) measures on occasional transactions with value exceeding S$20,000 may be done on an ex-ante basis.

Amendments to existing AML/CFT notices

Proposed alignment of existing AML/CFT requirements with that for digital payment token service providers

MAS sought views on aligning the existing AML/CFT requirements for banks, merchant banks, finance companies, credit card or charge card licensees and capital markets services licensees in relation to digital token transactions they conduct, with that for digital payment token (“DPT”) service providers.

No minimum threshold for application of CDD requirements for occasional transactions involving DPTs or digital capital market product tokens (“DCMPTs”): MAS clarified that the proposed CDD requirements apply when the FI establishes business relations or undertakes transactions for a customer who has not otherwise established business relations with the FI (i.e. for occasional transactions), in relation to digital token services and transactions that the FI is providing to or conducting on behalf of the customer.
Imposition of value transfer requirements for DPT or DCMPT services: All FIs engaged in digital token services will be required to comply with the value transfer requirements. In addition, FIs that receive or initiate value transfers will be required to screen both the value transfer originator and the value transfer beneficiary.
Application of AML/CFT requirements in FI-specific notice to digital token transactions: Clarification was sought on the enhanced risk mitigation measures FIs are to apply where transactions involve the transfer of digital tokens to entities other than an FI defined in section 27A(6) of the Monetary Authority of Singapore Act 1970, or an FI incorporated or established outside Singapore that is subject to and supervised for compliance with AML/CFT requirements consistent with the Financial Action Task Force (FATF) Standards. MAS stated that the enhanced risk mitigation measures could include those set out in paragraph 13-7 of the Guidelines to MAS Notice PSN02 (which include identifying and verifying the identities of the value transfer originator and the value transfer beneficiary, and performing enhanced monitoring over such transactions) and in the MAS infographic on Strengthening AML/CFT Controls of Digital Payment Token Service Providers (which sets out guidance on MAS’ AML/CFT requirements and supervisory expectations). MAS will also update the guidelines to the relevant FI-specific AML/CFT notices to provide further guidance to support FIs’ implementation of effective controls to mitigate risks arising from digital token services.

Proposed requirement of enhanced CDD measures for higher risk shell companies

Amendments to existing AML/CFT notices: Clarification was sought on whether holding companies, trading companies, private investment companies or start-ups incorporated in Singapore, which may have no ongoing, apparent or visible operation or business in Singapore, would constitute higher risk shell companies. In its response, MAS stated, among other things, that it will clarify in the guidelines to the respective AML/CFT notices that FIs and VCCs should use a multi-factor approach in their customer risk assessment, as a single risk indicator is typically not sufficient to establish suspicion. Where the customer does not have any operations or activity in Singapore, the FI or VCC should conduct proper risk assessments of the customer, including the legitimacy of its purpose for maintaining an account in Singapore.

MAS also clarified that “substantive financial activity in the customer’s interactions with the FI” refers to financial activities that can be reasonably explained by or traced to the customer’s business or activities, based on CDD conducted by FIs in accordance with the applicable AML/CFT notice requirements.

Amendments to guidelines to respective AML/CFT notices: Within the consultation paper, MAS had included proposed amendments to the AML/CFT guidelines, to set out several red-flag indicators of higher risk shell companies. To provide additional guidance within the guidelines, MAS will be setting out some examples to further illustrate the proposed behavioural red-flag indicators.

Proposed wire transfer and correspondent account requirements for credit card or charge card licensees

In relation to credit card or charge card licensees, MAS noted that there no comments or objections to its proposal to introduce requirements pertaining to wire transfers and correspondent accounts within MAS Notice 626A.

Proposed requirement of disclosure to designated non-financial businesses and professions and VCCs for licensed trust companies and approved trustees

MAS noted that there were no comments or objections to the proposed requirement for licensed trust companies and approved trustees to disclose to designated non-financial businesses and professions and VCCs when they act as trustees.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg: