MAS consults on AML/CFT Notices for Cross-Border Business Arrangements

The Monetary Authority of Singapore (“MAS”) has on 12 May 2021 published a consultation paper relating to draft Notices setting out proposed AML/CFT requirements under the proposed notification frameworks for cross-border business arrangements involving foreign head offices or branches (“foreign branches”) and foreign related corporations (“FRCs”).

Preface

Previously, MAS had announced that it would reform the existing approval regime for cross-border business arrangements under Paragraph 9 of the Third Schedule to the Securities and Futures Act and Paragraph 11 of the First Schedule to the Financial Advisers Act by replacing it with an ex-post notification framework. This notification framework will not only include FRCs of locally operating financial institutions (“FIs”), but also foreign branches of locally operating FIs.

In an earlier consultation, MAS had indicated that it would formalise AML/CFT requirements for such FRCs and foreign branches at a later stage. This present paper follows up the earlier consultation by inviting comments on the draft Notices setting out such AML/CFT requirements.

Our previous commentary on MAS’s earlier consultation may be found here.

AML/CFT policies and procedures applicable to foreign branches and FRCs

Under the proposed notification frameworks for both FRCs and foreign branches, locally operating FIs are required to have in place policies and procedures to oversee the conduct of the FRCs and/or foreign branches, as well as their representatives. In this current consultation, MAS is proposing that these policies and procedures would have to include:

1. conducting customer due diligence (“CDD”) in accordance with the relevant AML/CFT Notice applicable to the locally operating FI, and MAS Regulations made pursuant to UN Security Council Resolutions; and
2. maintaining or having access to all CDD records kept overseas by the foreign branches or FRCs and providing MAS with timely access to these records.

To implement the above AML/CFT requirements, MAS is proposing to issue the following additional AML/CFT Notices:

1. Notice on Prevention of Money Laundering and Countering the Financing of Terrorism – Specified Holders of a Capital Markets Services Licence and Specified Exempt Persons in relation to Cross-Border Arrangements under the Securities and Futures (Exemption from Requirements) (Cross-Border Arrangements) (Foreign Related  Corporations) Regulations;
2. Notice on Prevention of Money Laundering and Countering the Financing of Terrorism – Licensed Financial Advisers and Specified Exempt Financial Advisers in relation to Cross-Border Arrangements under the Financial Advisers (Exemption from Requirements) (Cross-Border Arrangements) (Foreign Related Corporations) Regulations;
3. Notice on Prevention of Money Laundering and Countering the Financing of Terrorism – Specified Holders of a Capital Markets Services Licence and Specified Exempt Persons in relation to Cross-Border Arrangements under the Securities and Futures (Exemption from Requirements) (Cross-Border Arrangements) (Foreign Offices) Regulations; and
4. Notice on Prevention of Money Laundering and Countering the Financing of Terrorism – Licensed Financial Advisers and Specified Exempt Financial Advisers in relation to Cross-Border Arrangements under the Financial Advisers (Exemption from Requirements) (Cross-Border Arrangements) (Foreign Offices) Regulations

These draft Notices can be found in Annexes A1 to A4 of this consultation paper. MAS has also indicated that the above draft Notices are to take effect from 9 October 2021.

Impact Assessment

While these draft Notices are welcomed, it seems that certain questions would have to be clarified in MAS’ subsequent response.

Firstly, while the draft Notices state that locally operating FIs are responsible for ensuring that CDD measures are consistent with the requirements under the relevant AML/CFT Notice applicable to the locally operating FI, it remains unclear whether the conduct of CDD is to be done by the locally operating FIs themselves, or their FRCs/foreign branches.

As a matter of principle, whether the locally operating FIs or the FRCs / foreign branches conduct CDD should be determined based on whether the customers are located within or outside Singapore, which would in turn affect whether it is the locally operating FIs or the FRCs / foreign branches which have access to the customers.

Secondly, while the consultation paper implies that the standard of CDD will be based on whether customers of the FRCs / foreign branches are also considered customers of the locally operating FIs, it does not clarify the difference between performing CDD measures in accordance with the relevant AML/CFT Notice applicable to the locally operating FI, versus performing CDD measures in a manner consistent with such relevant AML/CFT Notice. It also remains to be seen whether there is any difference between these two standards of CDD.

It is hoped that additional clarity will be provided in relation to the above questions, so as to assist locally operating FIs and their FRCs / foreign branches in complying with the above AML/CFT requirements.

A copy of the consultation paper may be obtained here.

This update was authored by Jeremy Koo.

For more information, please contact:

Eric Chan
Partner
T: +65 6439 0788
E: eric.chan@shooklin.com

Shook Lin & Bok LLP

This information is provided for general information and does not constitute legal or other professional advice. Specific advice should always be sought in relation to any legal issue. Shook Lin & Bok LLP does not accept any responsibility for any loss which may arise from reliance on the above information