MAS Circular on Ensuring Effective Detection of Sanctions-Related Risks
On 31 August 2023, the Monetary Authority of Singapore (“MAS”) published a circular on ensuring the effective detection of sanctions-related risks. This circular sets out additional guidance for financial institutions (“FIs”) to better detect and manage sanctions-related risks. FIs operating in Singapore are reminded of the critical importance of effectively detecting and managing sanctions-related risks and must stay informed about developments concerning all sanctions, including those unilaterally imposed by other jurisdictions. While the MAS does not implement unilateral sanctions from other jurisdictions, FIs are expected to consider the reputational, legal, and operational risks associated with actions taken following these unilateral sanctions and take appropriate measures to mitigate these risks.
Strong Board and Senior Management Oversight
FIs should establish a robust governance process to enable their board of directors (“Board”) and senior management (“BSM”) to exercise effective oversight of sanctions-related risks. This governance process should include:
- Risk Appetite: BSM should clearly define the FI's risk appetite concerning sanctions-related risks, encompassing indirect exposure to sanctioned entities, activities, or jurisdictions. In determining its approach in relation to unilateral sanctions imposed by other jurisdictions, the BSM should, in assessing the reputational, legal, and operational risks, carefully balance the potential impact on its business operations (including in other jurisdictions) against that from fast developing and escalating sanctions against any specific jurisdictions.
- Roles and Responsibilities: BSM should set clear roles and responsibilities within the FI in relation to detecting, monitoring, and managing sanctions-related risks. Adequate resources and training should be provided to staff across all lines of defence so that they can be well-equipped to identify sanctions-related cases and typologies.
- Risk Metrics: Risk metrics should be established to enable the BSM’s regular monitoring of significant sanctions-related risk exposures and ongoing risk management.
- Escalation Process: An escalation process for first and second-line functions should be in place to promptly report material sanctions-related risk events to the BSM. This includes situations involving new sanctions imposed on jurisdictions where the FI operates and the detection of new sanctions-evasion cases and typologies.
Continue to Strengthen its Sanction-Risk Detection Capabilities
FIs should enhance their sanctions-risk detection capabilities, incorporating data analytics alongside traditional screening controls to identify additional customers with relational or transactional links. The use of retrospective reviews, such as the "lookback mechanism" for wire transfer transactions, can identify higher-risk customers or transactions that seek to evade traditional payment screening controls by layering their transactions through third-party accounts. It is recommended that FIs take a risk-based approach, which takes into account the materiality and impact of different sanctions on the FI’s business operations, as well as reputational, legal and operational risks when instituting a lookback mechanism. FIs should also establish clear baseline parameters for their lookback mechanism, such as:
- Clearly Defined Trigger Events: Establish clearly defined trigger events for the lookback mechanism. These triggers should include new designations of individuals or entities posing higher sanctions risks to the FI.
- Scope and Period: Clearly define the scope of transactions subject to the lookback mechanism and the period of retrospective review. This should encompass corporate customer accounts and transactions occurring at least 12 months before the date of designation.
- Timely Initiation: Ensure that the lookback process is initiated promptly after the occurrence of the trigger event. The review of customer accounts with past transactions involving sanctioned persons should be completed no later than two months after the date of designation.
- Escalation of Deviations: Ensuring deviations from baseline parameters are promptly escalated to the BSM.
FIs are advised to review their AML/CFT frameworks and controls against this additional guidance and enhance their controls to ensure that they are aligned with MAS’ supervisory expectations.
For any further information, please contact:
Ingenia Consultants Pte. Ltd.