Effective Detection of Sanctions-related Risks – Circular No.: AMLD 11/2023
Ensuring Effective Detection of Sanctions Related Risks – Circular No.: AMLD 11/2023 issued by the Monetary Authority of Singapore (MAS)
Financial Institutions operating in Singapore must adhere to developments pertaining to all Sanctions within Singapore while ensuring alignment with unilateral Sanctions imposed by other jurisdictions. Sanctions in this context are the ones that bear a significant impact on the FI’s operations and customer relationships.
FI’s must take appropriate measures to mitigate reputational, legal, and operational risks arising from actions undertaken while following the unilateral sanctions requirements.
Additional guidelines set forth by circular No. : AMLD 11/2023
A. Strong Board and Senior Management (BSM) Oversight of sanctions–related risks:
- The FI’s Governance processes must empower BSM to establish a clear risk appetite, particularly concerning sanctions-related risks, which include exposure to
- Sanctioned persons,
- Activities, or
- jurisdictions and reporting thereof under Singapore legislation. The BSM, in its approach to unilateral sanctions, must ably strike a balance in assessing the potential impact arising out of risks it undertakes to carry out its business and ensure ongoing adherence to fast-developing and escalating sanctions against any specific jurisdictions and Singapore’s zero-tolerance towards breaches of sanctions applicable in Singapore.
- The FI’s Governance processes must empower BSM to set up an organisation structure to detect, monitor, and manage sanctions-related risk. Ideally, such risk needs to be handled by staff/personnel who are adequately and regularly trained to identify sanctions-related typologies, which shall, as a result, ensure staff accountability within the FI.
- The governance process to include – established risk metrics that shall enable the BSM to monitor and manage sanctions-related exposures on an ongoing basis.
- The FI’s Governance to have a defined escalation process that charts out the first- and second-line function so that the BSM is made aware of sanctions-related risk events expediently.
- FI’s these days depend largely on Data Analytics (DA) to detect sanctions-related risks.
- The use of data analytics comprises enhanced detection capabilities which involve retrospective reviews of wire transfer transactions that proactively identify existing customers who previously transacted with sanctioned persons for closer review or more commonly referred as ‘lookback mechanism.’ These enable FIs to detect potentially higher-risk customers and transactions that usually succeed in evading traditional payment screening controls using third-party accounts.
- FI’s are advised to implement a risk-based approach by establishing a baseline threshold that ensures the effectiveness of its lookback mechanisms. Which include
- Defining clear trigger events so that lookback/closer review processes are initiated – and include new designations of persons that present higher sanctions risks to the FI.
- Specify the scope and period of lookback. Mechanism to include FI’s corporate customer accounts and transactions occurring at least 12 months preceding the date of designation.
- Ensuring that the lookback mechanism is initiated soon after the trigger event, ideally within two months after the date of designation.
- Reporting Deviations from the prescribed baselines (in line with the FI’s defined risk appetite) to the BSM.