Additional Compliance Obligations for Fund Managers: The Revised MAS Anti-Money Laundering Notice and Guidelines

Capital market intermediaries in Singapore (“CMIs”), including registered and licensed fund management companies, are subject to a strict compliance regime aimed at combating money laundering and terrorism financing.

On 24 April 2015, the Monetary Authority of Singapore tightened further this regime by issuing the revised Notice to Capital Markets Intermediaries - Prevention of Money Laundering and Countering the Financing of Terrorism (“MAS Notice SFA04-N02”), as well as the revised Guidelines to MAS Notice SFA04-N02 (“Guidelines”).

Here are a few points that compliance officers of CMIs should take note of in respect to the MAS Notice SFA04-02 and the Guidelines.

1. Adopting a risk-based approach in the implementation of AML/CFT controls: CMIs will have to identify and assess the overall money laundering and terrorist financing risks they face and take commensurate steps to mitigate such risks. The MAS Notice SFA04-N02 itself, at paragraph 4, sets out the steps CMIs should take to assess and mitigate such risks.
2. Correspondent Accounts: When CMIs provide correspondent account services in Singapore to financial institutions operating outside Singapore (i.e., provision of services under a cross-border relationship with a foreign financial institution in relation to a regulated activity), CMIs will have to perform specific due diligence as set out in Paragraph 10 of the MAS Notice SFA04-N02.
3. Underlying Investors as Customers: CMIs should treat the underlying investors of investment vehicles (with certain exclusions) that CMIs manage as the CMIs’ customers. This includes having to perform customer due diligence on said underlying investors.
4. Management of Overseas Relationships: Regardless of the jurisdiction in which a customer relationship begins, if that relationship is in substance mostly conducted and managed from Singapore, CMIs should perform customer due diligence on the accounts managed.>
5. Reasonable Grounds for Suspicion: If CMIs have reasonable grounds to suspect assets or funds of a prospective customer are proceeds of a serious offence (e.g., drug trafficking or terrorist financing), CMIs should not establish a business relationship with such prospective customer. If the same occurs for an existing customer, the CMI should either end the relationship or take mitigating steps commensurate with the risk assessment.

6. Identifying Beneficial Owners: CMIs should identify the beneficial owners of legal persons. The MAS Notice SFA04-N02 now provides further elaboration on the measures CMIs should undertake for this purpose.
7. Customer Screening: CMIs are now required to screen customers, natural persons appointed to act on behalf of customers and the customers’ connected parties and beneficial owners.
8. Politically Exposed Persons: In addition to further clarification on the definition of a politically exposed person, including family members and close associates of such person, a new category has been introduced to capture individuals entrusted with prominent public functions in international organisations.
9. Other High-Risk Categories: CMIs are expected to take into account the higher risk of money laundering and terrorism financing in countries and jurisdictions identified by the Financial Action Task Force for AML/CFT controls.
10. Outsourcing of Customer Due Diligence: CMIs are allowed to both rely on certain third parties and outsource the performance of customer due diligence. The Guidelines distinguish between outsourcing customer due diligence and relying on third parties to perform customer due diligence.
11. AML/CFT Within CMIs’ Group: CMIs are expected to develop and implement group-level policies and procedures for the purposes of customer due diligence and AML/CFT controls.

Most of the new provisions in MAS Notice SFA04-N02 came into effect from 24 May 2015, and the specific requirements set out in Paragraphs 4, 5, 14.6 and 14.7 came into effect from 24 July 2015.

Written by Derrick Boo.

Please contact Ramiro Rodriguez at rrodriguez@duanemorris.com or Derrick Boo at dboo@duanemorrisselvam.com for more information.

The content of this update is of general interest and is not intended to apply to specific circumstances. The content should not therefore, be regarded as constituting legal advice and should not be relied on as such.