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The MAS has recently amended sections of its AML/CFT rules to explicitly carve in digital CMP token transactions in Singapore, including value transfers. The changes also relate to customer due diligence and all Capital Markets Intermediaries should be aware of the regulator’s expectations.
Digital Capital Markets Products – or CMP – tokens are increasingly dealt by Capital Markets Intermediaries to harness the benefits of blockchain technology. Some intermediaries – or CMIs – may also play a role in the value transfers of these digital tokens. MAS rules and regulations apply to these CMIs and the digital CMP tokens that they offer in the same way as to more traditional players.
Changes to the AML notice to Capital Markets Intermediaries
The changes to the MAS AML Notice (SFA04-N02) to CMIs took effect on 1 March 2022. In addition to the inclusion of transactions in digital CMP tokens and value transfers, there were other changes made in relation to customer due diligence (CDD), the most significant of which we look at below.
Transactions in digital CMP tokens
Similar to traditional transactions, a CMI that undertakes any digital CMP token transactions, regardless of the amount, will need to perform CDD and screening (and simplified CDD and enhanced CDD where appropriate) for any customer with whom it has not established business relations. On an ongoing monitoring basis, the CMI also needs to perform enhanced risk mitigation measures for transfers to or receipts of digital CMP tokens from, an entity. However such enhanced measures need not be carried out if the entity is regulated by the or regulated overseas for AML standards set by the FATF.
Value transfers
Likewise, a CMI needs to perform CDD and screening (where appropriate simplified CDD or enhanced CDD) when it effects or receives any digital CMP tokens by Value Transfer, for any customer with whom it has not otherwise established business relations.
Simply put, Value Transfer as defined by the FATF refers to services that involve the acceptance of cash, cheques or other monetary instruments and the payment of a corresponding sum in cash or other form to a beneficiary by means of a communication, message, or transfer. Such services can involve one or more intermediaries and a final payment to a third party, and may include any new payment methods.
Given the proliferation of payment services in Singapore, and the intertwining of CMIs in this value chain, the MAS has included a new section (Section 10A) on Value Transfers in the AML Notice. This section provides exhaustive steps that Ordering, Beneficiary, and Intermediate Institutions need to take to mitigate ML/FT risk.
In is essential that CDD is performed on the value transfer originator and beneficiary. In addition to the CDD, CMIs must also comply with rules pertaining to the collection, transmission, production and retention of information of the customers and value transfers. For example, the ordering institution needs to provide the beneficiary institution the names of the originator and beneficiary, and their account numbers or unique transaction reference numbers. Likewise, the ordering institution needs to produce such information expediently to the MAS or other law enforcement authorities in Singapore, should they request for it.
Customer due diligence
The MAS also made some changes to the CDD sections of the AML Notice. Listening to the challenges that CMIs can have obtaining the unique identification number of connected parties, and the residential address of natural persons appointed to act on behalf of the customer, the MAS will permit the CMI to instead obtain the date of birth and nationality, and business address, respectively of these individuals. In all cases, the attempts to obtain the original information must be documented, and the business address must be verified. These new measures do not apply to a customer who has been assessed to be of high risk.
In relation to legal arrangements, the MAS sets out that where a customer has no visible operations, no business purpose for its corporate structure, and no substantive financial activities with the CMI, the CMI must make a determination as to whether the customer is high risk from a money laundering and terrorism financing perspective. Such arrangements will typically be shell companies.
How we can help
Bovill regularly works CMIs to ensure that they meet their regulatory obligations. Our work ranges from licensing to providing tailored ongoing support. Specifically, as you prepare for these changes in the AML/CFT requirements, we can assist to:
- Perform a review of your policy, procedure and oversight framework.
- Perform an audit of your AML/CFT controls.
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