MAS Issues AML Outsourcing Guidance for Capital Market Firms

Source: Regulation Asia Editors, Regulation Asia 2020-07-16

MAS found material lapses in AML/CFT controls outsourced to service providers by capital market intermediaries, largely the result of poor assessment and due diligence processes, and lax oversight and monitoring.

MAS (Monetary Authority of Singapore) has published a new guidance paper setting out its supervisory expectations for capital markets intermediaries that outsource AML/CFT control functions.

Consistent with its October 2018 guidelines on outsourcing, MAS considers the outsourcing of AML/CFT control functions is considered material outsourcing. As such, capital market intermediaries need to ensure that they conduct a robust assessment of service providers, and establish mechanisms to monitor and control AML/CFT outsourcing arrangements on an ongoing basis.

The Board and senior management will remain ultimately responsible and accountable, and should therefore exercise strong oversight over AML/CFT controls and compliance arrangements, even where these functions are outsourced to service providers, MAS says.

From a series of thematic inspections of capital market intermediaries, MAS found that several capital market intermediaries failed to detect “major lapses” by service providers, which resulted in AML/CFT breaches.

Many of these breaches were attributed to inadequate assessment of service providers, where a formalised assessment approach and documentation requirements were not in place. In some cases, assessment considerations were overly geared towards cost considerations or the perceived reputation of services providers.

Inadequate assessment and due diligence practices resulted in a poor understanding of service providers’ actual AML/CFT practices, and a misalignment with MAS requirements, the regulator said.

MAS also found that several capital market intermediaries did not have monitoring mechanisms in place to oversee their service providers’ implementation of key AML/CFT control functions. Management reports, escalation processes, and quality assurance reviews were also not defined in some cases.

The paper provides guidance on strengthening assessments, due diligence, oversight and monitoring of service providers used by capital market intermediaries for AML/CFT functions.

Capital market intermediaries should conduct a gap analysis against the best practices outlined in the new guidance as well as the October 2018 guidelines, and take appropriate measures to enhance their practices, MAS said.

MAS

AML

CFT

MAS Issues AML Outsourcing Guidance for Capital Market Firms

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