MAS issues circular on establishing sources of wealth of customers

27 August 2024

On 26 July 2024, the Monetary Authority of Singapore (“MAS”) issued Circular AMLD 08/2024 on Establishing the Sources of Wealth of Customers (“Circular”).

The Circular, which is addressed to the chief executive officers of all financial institutions (“FIs”), provides guidance to FIs in the wealth management sector on the establishment of the sources of wealth (“SOW”) of their customers, including the following risk principles that FIs should consider in the designing of their policies and procedures to establish SOW of their customers in a risk-proportionate and reasonable manner:

• Materiality: FIs should seek to obtain information on a customer’s entire body of wealth to the extent practicable with the primary outcome being to determine the SOW that are more material or of higher risk. While FIs should seek to understand customers’ total wealth and how it was acquired, MAS recognises that there may be situations where it may not be possible or practicable to corroborate some SOW, e.g. SOW from many years ago for which documents may no longer be easily available. In such cases, FIs should (i) focus on corroborating the SOW that are more material or of higher risk, and (ii) assess whether the residual risk of the uncorroborated wealth is acceptable to the FI and whether additional risk-mitigating measures are needed in the absence of corroboration.

• Prudence: For material SOW, FIs should attempt to use more reliable corroborative information, such as audited accounts or documents issued by independent third parties (e.g. tax accountants). If benchmarks or assumptions are used to (i) assess the plausibility of information received from customers, or (ii) estimate a segment of a customer’s wealth in the absence of corroborative evidence, FIs should ensure that they are reasonable, relevant, and appropriate for the customer’s specific risk profile and circumstances. The FI’s bases for the benchmarks and assumptions used should be documented and reviewed periodically. FIs should also bear in mind that benchmarks and assumptions should facilitate assessment of the plausibility of the customer’s SOW, and should not be used to justify or support circumstances or explanations provided by the customer if there are reasons that cast suspicion on the SOW.

• Relevance: FIs should seek to obtain pertinent, fit-for-purpose corroborative evidence to the extent practicable. In doing so, FIs should exercise reasonable judgment in determining which documents are critical for corroborating a customer’s SOW and which documents they may reasonably do without, e.g. documents from many years ago which may no longer be easily available and are not of high relevance to the generation of the customer’s wealth. Where possible, FIs may utilise independent and reliable documents and information obtained from credible public sources to support their assessment of customers’ SOW, without having to rely on customers to provide corroborative evidence.

The Circular explains that establishing the SOW of customers is part of a wider set of anti-money laundering and countering the financing of terrorism (“AML/CFT”) controls to ensure the legitimacy of the customers’ wealth and transactions. In this regard, senior management should do the following:

• Exercise close oversight over higher risk accounts: For example, where an FI is unable to corroborate a significant portion of a customer’s wealth, the FI should escalate the case to its senior management for approval before establishing business relations with the customer and consider whether additional risk-mitigating measures are needed, such as enhanced monitoring of the customer’s transactions.

• Ensure that ongoing monitoring controls take into account the customer’s risk profile: Ongoing monitoring controls should take into account customer information gleaned from SOW establishment, such as the customer’s total net worth and expected sources of funds, to facilitate the FI’s assessment of whether the customer’s account activities are in line with their profile.

MAS will continue to engage the industry on this issue and will support ongoing work by the AML/CFT Industry Partnership (ACIP) in developing a paper on best practices in SOW establishment.

Reference materials

The Circular is available on this webpage of the MAS website www.mas.gov.sg.