Ong Chong Tee: Observations and thoughts from a financial
regulator's perspective
Keynote address by Mr Ong Chong Tee, Deputy Managing Director (Financial Supervision) of the
Monetary Authority of Singapore, at the Association of Certified Anti-Money Laundering
Specialists (ACAMS) 9th Annual Anti-Money Laundering & Financial Crime Conference,
Singapore, 24 April 2017.
* * *
1. Good morning. Mr Timothy McClinton, President and CEO of the Association of Certified
AntiMoney Laundering Specialists (ACAMS); Ms Hue Dang, CAMS-Audit Head of Asia; Distinguished
Guests, Ladies and Gentlemen. I am delighted to join you in this 9th Annual Anti-Money
Laundering & Financial Crime Conference in Asia Pacific.
2. I like to commend ACAMS's leadership and your membership for the extensive work on
training and various outreach programmes relating to financial crime detection and prevention.
Many of you are specialists and experts in this area. But as Malcolm Forbes once said: one
definition of an expert would be someone who knows enough of a subject to know that he does
not know how much he does not know. Fora such as this are therefore beneficial for collective
learning and sharing, to plug knowledge gaps and to exchange perspectives.
3. Allow me to share some observations and thoughts this morning from a financial regulator's
perspective.
4. For some years now, the global community has been stepping up our efforts to combat money
laundering and terrorist financing. The integrity and stability of the international financial system
must not be exploited by those who engage in criminal activities.
5. An ongoing challenge is that the threats are ever evolving. The nature of illicit fund flows are
varied and often cut across jurisdictions and economic sectors. In the case of money laundering
(ML), the intention is to camouflage the origin of ill-gotten proceeds or property. Terrorist
financing (TF) can be different in that the sources of such funding may be of proper or legal
origins. The motivation is often to disguise the use of the funds.
6. Criminals can and will try to use increasingly sophisticated ways to "beat the system" to
launder money or finance terrorism. It is very difficult to estimate the size of this problem given its
opaque nature. There have been various estimates that the amount of money laundered each
year is far in excess of US$1 trillion. In truth, no one really knows. What is more important is that
globally, it is recognised that this is an important issue that affects us all. ML and TF threats
undermine the confidence and stability of financial systems. There are also high social and
political costs.
7. This is why at national levels, many countries including Singapore have taken holistic
measures to address ML/TF risks. Besides a multitude of actions relating to laws, regulations,
penalties and public awareness, specific tools also include the ability of regulators and law
enforcement authorities to carry out risk surveillance, investigation and information exchanges. A
number of international organisations and groupings, including the Financial Action Task Force
(FATF), IMF, G20, OECD's Global Forum on Tax, the Egmont Group etc. have also co-ordinated
international efforts to tackle the problem in a comprehensive manner. This is essential given the
trans-national nature of the threats.
8. The FATF - which is the international standard setting body - has also sought to develop more
guidance relating to various sectors and entities. Many of you will be familiar with the FATF
Recommendations on money laundering, terrorism financing and proliferation financing. In 2012,
the FATF enhanced its Recommendations to put emphasis on effectiveness. That is, merely
having rules in place is not enough. FATF also developed a more systematic framework for peer
reviews.
9. Let me turn to developments in Singapore.
10. We have a comprehensive legal and regulatory framework, in line with global standards. We
will continue to enhance our Anti-Money Laundering (AML) and Countering the Financing of
Terrorism (CFT) regime.
11. Last year, the MAS decided to consolidate some of our supervisory resources into a single
AML department so that we can further deepen our technical expertise and focus in this area.
This will allow us to better streamline supervisory efforts across various sectors of finance such
as banking, insurance and capital markets. At the national level, the AML Department
coordinates AML/CFT strategies across all economic sectors, together with other government
agencies.
12. The financial sector is a critical component of our national AML/CFT defences. MAS'
framework involves four key elements:
(a) Progressive Regulations
(b) Intensive Supervision
(c) Rigorous Enforcement
(d) International Co-operation and Industry Partnerships
13. Firstly, on Regulations. MAS regulations for the financial sector are benchmarked to global
standards. Over the years, we have updated our requirements to keep them current and
relevant.
14. But regulations are defined sets of rules and requirements. They cannot possibly cover all
situations and every manner of activity or behaviour; to try to do so would require ominous
amounts of prescriptive and narrow rules that are neither feasible nor practical. So regulators
worldwide including ourselves have to consider carefully how to put in place workable rules:
having the appropriate regulations that cover the requirements under the FATF standards while
taking into account any practical challenges of implementation, operational inefficiencies and
unintended consequences.
15. This leads me to the second element of our framework - Supervision. It is one thing to have
a set of workable rules and regulations. It is another thing to have the requirements clearly
understood and complied with. No amount of regulations will be effective if the quality of
implementation is poor or if financial institutions (FIs) are not vigilant.
16. The MAS has in recent years stepped up our AML offsite reviews and onsite supervision of
financial institutions. Our supervisory intensity is necessarily risk-based given that both
regulators and the regulated entities work within finite constraints of resources and time.
Therefore, we have adopted various risk bucketing metrics so that we can be targeted on more
vulnerable areas. This has resulted in the intensification of our supervision on areas or
businesses that are more prone to ML/TF risks, or where controls have been found to be lacking
from past inspections.
17. We have organised and will organise more industry engagements to share supervisory
findings on common lapses and good practices at the end of each series of inspections. This is
intended to help level up controls over time.
18. Our inspections go beyond rules-based compliance. We focus on whether financial
institutions demonstrate a good understanding of risks, and a good risk culture within the
organisations. We much prefer that FIs adopt a proactive approach in meeting their regulatory
obligations than a passive rule-based attitude. Let me elaborate on this.
19. One area relates to governance. You are all familiar with the common thinking of having
three lines of defence. Recently, there are suggestions to augment this with a "four lines of
defence" model for better governance in financial institutions. The first line involves frontline and
management controls within business units; then compliance and risk management functions as
the second line; and the audit function as the third line. A newer fourth line involves interactions of
the FI with its external auditors and regulators. An FI's senior management and board should
monitor and be satisfied that these lines are effective. Senior managers should never "look the
other way" on suspicious transactions, even if they involve major clients who are significant
revenue sources. After all, reputation and legal risks can be costly too.
20. The MAS expects boards and senior management to have ownership and oversight of ML/TF
risk control issues. FIs therefore must put in place an effective reporting framework to keep
board and senior management well apprised. In turn, Board and senior management must
oversee proper resolution of ML/TF risk control concerns as flagged out internally by your staff,
by auditors or regulators.
21. The next area relates to risk culture. Clearly, culture is not easy to prescribe as a practical
matter. Every staff in the FI, not just its management, contributes to its culture. However,
management usually has decisive influence on a firm's overall culture by setting the right "tone
from the top" which must be reinforced through supporting actions to secure the commensurate
"echo from the bottom". Those in the various lines of defences must be empowered and
recognised for doing their jobs well.
22. My remarks so far have discussed the MAS' approach to Regulations and Supervision. Let
me now touch on the next element of our framework - Enforcement. No matter the amount of
regulations and notwithstanding the heightened intensity of our risk-based AML supervision,
those bent on breaking our ML/TF laws will always try to find ways to exploit any weaknesses in
control systems or practices. This can happen especially if an FI's governance and culture fall
short and appropriate due diligence is overlooked in lieu of business motivations. Should this
happen, the MAS will take tough enforcement actions for breaches of our regulatory
requirements. Where laws are broken, we will also not hesitate to refer these to the law
enforcement agencies for investigation and prosecution.
23. Last year, we announced the centralization of our enforcement function into a single
department. The team in our Enforcement Department will deepen our capabilities in
investigative work that were previously undertaken by prudential supervisors. A centralised
enforcement function in MAS will also allow us to take a holistic approach to "follow the funds"
should these cut across different types of entities in our financial sector.
24. Let me now highlight the fourth key element of our AML/CFT framework: International
Cooperation and Partnerships.
25. I have mentioned Singapore's commitment to the international efforts to combat ML/TF risks.
We fully support the important work of various international organisations including the FATF. In
addition, it is important to have close supervisory co-operation between financial regulators and
we hope to expand on our supervisory cooperation network. Another area which we will
strengthen is our partnership with the financial industry.
26. While law enforcement and regulatory authorities have wide powers, the financial industry
has an "on the ground" vantage point with front-line knowledge of business and clients. It is
hence advantageous to adopt a collaborative "eco-system" approach to holistically deal with
ML/TF risks. Such a partnership should be as inclusive as practicable - involving law
enforcement agencies, regulator and the industry. Through collaborative partnership platforms,
we can expand our understanding of emerging risks and the typologies criminals use to launder
money. This will allow us to work together to design better tools to detect and deter ML/TF
activities. With this in mind, I am pleased to announce the launch of the AML/CFT Industry
Partnership, or ACIP.
27. Industry engagement is not new. The MAS greatly values its many existing co-operation with
the industry such as with the Association of Banks in Singapore (ABS). Such partnerships are
also not new in the world. Other jurisdictions, for example the UK and Australia, have also
launched similar initiatives.
28. What the ACIP will do in addition, is to institutionalise a collaborative partnership between the
law enforcers, regulator and industry. The ACIP will comprise a Steering Group which will be
jointly chaired by the CAD and MAS with senior representatives from the ABS and a pilot group of
eight banks. It will provide a dedicated forum to more effectively exchange ideas and information
to mitigate ML/TF risks based on the national threat assessment.
29. The Steering Group will set up various Working Groups to do targeted work on priority topics.
These Working Groups will deliver tangible, relevant and targeted products which will be
disseminated to the broader industry. The Working Groups will also share best practices and
typology alerts. Senior industry participants from within and outside the financial sector will be
invited to contribute to these Working Groups. I trust that all relevant stakeholders will step up to
the call.
30. Last but not least, let me say something about capability and capacity building in combating
ML/TF. Private sector bodies such as ACAMS are important in the training of AML/CFT
specialists, and will certainly complement the internal programmes of financial institutions. The
need to deepen capabilities and enhance capacity applies equally to us as a regulator and to law
enforcement agencies.
31. One newer development is the greater use of technology tools and solutions including in the
area of data analytics. I know many of you, in your respective firms, are already tapping on
technology tools to improve your ability to detect fraud or unusual activities. Some of you are
aware of the ongoing discussions in Singapore to develop utilities that can streamline "KYC"
processes and uplift the overall quality and consistency of such checks and customer
onboarding. We can expect the increased use of technology especially in the areas of AML/CFT
screening and risk monitoring.
32. As a financial regulator, the MAS is able to look for linkages and patterns across financial
institutions. These may include emerging risks or irregular relationships, or networks and
linkages between entities or actors. MAS is therefore also investing in the use of technology and
analytics. Recently, we announced the formation of a dedicated Data Analytics Group which will
complement and support the analytics units in our supervisory teams. This internal analytics
"hub-and-spoke" model will deepen our "SupTech" capability, in turn allowing MAS supervisors to
better tap the "RegTech" capability that many FIs have embarked on. This SupTech-Regtech
linkage is targeted at driving adoption of technology for compliance and supervision efficiency
and effectiveness.
33. A greater use of analytics to support our AML/CFT risk monitoring and supervision work will
hence be a key priority in MAS. To illustrate, we expect to tap Hadoop-based Big Data system to
build complex network models that are better able to identify and pick up subtle patterns in entity
behaviours. In the future, we hope to rely more recent technologies such as Machine Learning,
Deep Learning and Graphics Processing Unit (GPU) based computing, to deepen MAS's
financial surveillance and supervisory insights. I know that some of the major FIs are doing the
same. Our Data Analytics Group will also look to establish a community of senior data
practitioners with the industry to support an exchange of views for mutual learning.
34. Let me conclude by reiterating why we take ML/TF threats so seriously. Singapore is an
important global financial hub. Our financial centre is home to many FIs including a number of
international firms. Many of them serve the region including in global business lines or in regional
corporate functions. Our reputation is one of being a clean, trusted and efficient financial centre
supported by a talented workforce and strong rule of law. This reputation has been built over the
years and must be protected diligently.
35. With the rise in ML/TF risks globally, Singapore must be proactive in playing our part to
combat these threats. To be effective, we need to forge a strong collective effort with every
stakeholder doing its part. In this regard, a good regulator-industry partnership is one essential
thrust of our AML/CFT strategy.
36. On this note, I wish you a successful and fruitful conference.