The Monetary Authority of Singapore (MAS) recently conducted inspections of capital markets intermediaries (CMIs) to evaluate their monitoring of AML/CFT service providers (ASPs), and to assess how well they understand the AML/CFT control functions that are outsourced to these ASPs. Based on the inspections, MAS has laid out the measures CMIs should take when outsourcing AML/CFT control functions.
CMIs where assets are managed by fund management companies typically outsource tasks like customer due diligence, screening and ML/TF risk profiling of customers to fund administrators. Deficiencies can occur at the stage of conducting due diligence of the ASPs and during regular monitoring of their performance. If CMIs do not fully understand the functioning of ASPs or fail to monitor their performance in a timely manner, these deficiencies could go unnoticed and CMIs will likely violate MAS’ regulations.
Hence, CMIs should first conduct a robust assessment of the ASPs. A well-structured assessment plan and pre-defined success criteria help immensely with the outsourcing process. CMIs must also perform a gap analysis on the ASPs to ensure that they meet all regulatory requirements. It is also crucial to properly document all assessments and approvals. Further, board and senior members must involve themselves more actively in the oversight of the outsourcing process.
Even though MAS’ guidelines are based on its inspections of CMIs, other financial institutions can modify them for their use. Therefore, MAS recommends that all financial institutions apply these guidelines in practice.
