Circular on ensuring effective detection of sanctions-related risks

In an effort to ensure that ALL Financial Institutions (FIs) in Singapore effectively detect and manage sanctions-related risks, thereby safeguarding the integrity of Singapore’s financial market, the Monetary Authority of Singapore (MAS) has published a corresponding new circular. In this circular, the Authority presents additional guidance FI’s should consider in the design of their processes to ensure adequate detection, management, and monitoring of such risks. The circular thereby focuses on three key aspects: firm’s governance, detection capabilities, and the review of existing Anti-Money Laundering (AML) and the Countering of the Financing of Terrorism (CFT) frameworks.
Specifically, MAS notes that it is crucial for FIs to:
(1) Establish strong governance oversight:
– The Board and Senior Management (BSM) must exercise clear oversight of sanctions-related risks.
– The BSM should set a risk appetite regarding sanctions-related risks, including exposure to sanctioned entities, activities, or jurisdictions.
– Roles and responsibilities for detecting, monitoring, and managing sanctions-related risks should be clearly defined within the FI.
– FIs are recommended to implement risk metrics for ongoing monitoring.
– FIs need to establish an escalation process for reporting significant sanctions-related risk events promptly to relevant persons.
(2) Enhance sanction-risk detection capabilities:
– Data Analytics (DA) should complement traditional screening controls for detecting sanctions-related risks.
– DA can include network link analysis to identify connections to sanctioned individuals and potential evasion activities.
– Any deviations from baselines should be escalated to the BSM.
– FIs should perform retrospective reviews (lookback mechanisms) of wire transfer transactions to identify high-risk customers or transactions that bypass standard screening controls. In this context, they are advised to apply a risk-based approach for lookback mechanisms, considering materiality and impact of sanctions on business operations. They are also advised to define trigger events for such reviews and the scope and timeframe for the lookback process. Once a trigger event occurs, the lookback mechanism should be initiated promptly.
(3) Review and enhancement of existing AML/CFT frameworks:
– FIs should evaluate their AML/CFT frameworks and controls based on the additional guidance provided in the circular.
– FIs should address any identified gaps and strengthen their controls whereever necessary.