AML - Broken Record, Old Gramophone in a Runaway Train
That's basically it. A perfect formula for an auditory disaster when the old gramophone plays the broken record of Soul Asylum's 1993 ballad, Runaway Train. Just keeps going on and on like there's no tomorrow.
In the MAS Report 2015/16 Media Conference, Mr. Ravi Menon, Managing Director of the MAS made numerous important comments in respect of our favourite topic - Money Laundering. I will be indeed sounding like a broken record myself if I repeat the background regarding 1MDB, BSI and several other related news that have hogged the headlines in recent months.
What Did Mr. Menon Say?
Full text can be found HERE.
"The growth of our financial centre has been underpinned by Singapore’s reputation as a clean and trusted jurisdiction. Upholding high standards of integrity in the financial industry is an absolute priority for MAS. There can be no compromise on this."
Recall an earlier speech by Mr. Menon on 23 January 2015, Building a Culture of Trust in the Financial Industry. He spoke then about (1) trust between regulators and financial institutions; (2) trust among financial institutions; and (3) trust the public places in the financial industry.
Certainly not a broken record but a further iteration of MAS' current approach and underlying principles of the way it regulates the industry except that it is now as in-your-face as it can get.
Mr. Menon stated 4 key prongs in the AML/CFT regime:
a robust legal and regulatory framework that sets the rules;
active supervision of FIs to check for compliance with the rules and adequacy of controls;
strict enforcement to punish non-compliance; and
good cross-border cooperation.
There is a silver lining in every cloud. I picked up a good news for the industry out of this. MAS noted that the current AML/CFT rules are in line with global standards (presumably that refers to FATF standards). While we await the issuance of the FATF Mutual Evaluation Report on Singapore, it is comforting to hear that MAS does not think that we need more new rules in this respect. Very sensible. More rules don't necessarily make better compliance.
As previously announced, effective 1 August 2016, MAS is setting up a dedicated AML department to focus on its supervision of banks and FIs. This means that the level of scrutiny will intensify. So will enforcement actions against non-compliance.
Recall the trust comment earlier? When a regulator picks up 1 single case of non-compliance, it remains as isolated and not systemic. If it picks up several other cases with similar lapses but perhaps with differing degree of non-compliance, it becomes more worrying. Now, if the quantum and value of transactions are large and that it involves several other regulators globally, you've got a real problem. Trust between regulator and financial institutions is in question.
"MAS is disappointed with the lapses in AML/CFT controls and breaches of AML/CFT regulations that we have picked up in our FIs. MAS is determined to fix the problem, working together with the industry."
So when MAS says that it is "determined to fix the problem", it recognises that firstly, there is a problem and secondly, it will be fixed.
What's It With Broken Record and Old Gramophone?
Very simple. Here's the cast and script
12-inch black vinyl records as the banks and FIs
gramophone as the MAS
audience as the public
The good old reliable gramophone plays whatever LP that you put on. If it is a good, solid, well-kept record (good AML controls), it plays beautiful music. Audio sensory pleasure to the public. Heaven.
If you put on a slightly damaged record (minor lapses in AML controls), you hear disruption noises. The gramophone picks up the imperfections but can still play okay pieces. Audience may lose interest and stop listening after a while.
However, if you put on a broken record (serious lapses in AML controls), the results is pretty obvious (though not pretty in itself).
MAS has also made it abundantly clear that it is looking into the use of technology such as data analytics and machine-learning algorithms to be more effective in the detection of market misconduct and money laundering/terrorism financing.
Typically, in any internal control framework, there should Preventive Controls and Detective Controls. Banks and FIs should have in place both sets of controls effectively.
For incumbents, relying on spreadsheets and bums on seats may not get you much further in the future when your regulator is so far in advance in respect of technology.
For new entrants such as Fintech companies seeking licences here (sandbox or otherwise), stripping out all the fancy and hype about how good your product is and how much disruption (and value) you can bring to the market, without demonstrating to the MAS your understanding of risks (in particular AML/CFT risks) and designing appropriate controls (preventive and detective), it is hard to convince MAS to put you on the gramophone in the first place.
Finally, What's The Deal with Runaway Train?
Nothing much really except that the AML regulatory train is in motion and it doesn't look like it is stopping anytime soon. Key is not to get run over by the huge locomotive.
Aptly, the MTV of the Runaway Train featured lost children around the world potentially running away from crimes such as family violence, prostitution, human trafficking, drugs etc. which reminds me that the fight against money laundering and terrorism financing is not just about catching the next big politically exposed person(s) stashing millions or billions away in personal bank accounts or evading taxes. It is more about the underlying victims suffering under these heinous crimes and the ability of such criminals in abusing the financial system to achieve their gains.
For the Singapore and Malaysia readers, in case you are thinking too much, there is no pun intended for using Runaway Train in this article given Singapore and Malaysia have just signed the MOU on High-Speed Rail Project on 19 July 2016. I will also not comment nor speculate who is "Malaysian Official 1".
