Data Analytics Becoming Embedded at Singapore FIs

The increased use of data analytics and digital processes has led to increased AML/CFT effectiveness, according to MAS Assistant Managing Director Ms Loo Siew Yee.

Data analytics and digital processes have become more embedded in Singapore’s financial sector, according to a top official at MAS (Monetary Authority of Singapore).

Speaking at the ACAMS 12th Annual AML & Anti-Financial Crime Conference last Tuesday (27 April), MAS Assistant Managing Director Ms Loo Siew Yee said that many banks have upgraded their risk detection and analytics systems, or are in the midst of doing so.

Project POET

The increased use of data analytics and digital processes has led to increased AML/CFT effectiveness, she said, pointing to the “enhanced operational efficiency” from Project POET (Production Orders: Electronic Transmission).

Project POET was co-developed by the Singapore Police Force and OCBC in July 2019 to automate the issuance and response to police production orders for the retrieval of banking information.

DBS and UOB have since joined the initiative, Ms Loo said, encouraging other banks and FIs to consider doing the same.

“Project POET has dramatically cut the turnaround time for this process by up to 97%, and correspondingly freed up resources spent dealing with these production orders,” she said.

Shell company networks

Ms Loo also spoke of efforts by banks to use data analytics capabilities to identify networks of shell companies and pass-through transactions in their bank accounts.

These activities were brought to the attention of ACIP, which then issued advisories to alert the wider industry of the key indicators of these suspicious networks, she said.

Since 2019, the CAD (Commercial Affairs Department, MAS, and banks have worked together through ACIP on specific cases and targets, where intelligence and leads are shared through a ‘hub and spoke’ model.

These efforts have culminated in successful interceptions of about SGD 69 million, including more than SGD 19 million of incoming funds that were blocked through the banks’ proactive identification of suspicious accounts.

Trigger-based risk assessment

Looking ahead, Ms Loo said MAS will continue to encourage and expect FIs to effectively leverage data analytics in their AML/CFT frameworks.

She highlighted that a “more dynamic and trigger-based risk assessment” of customers and suspicious transactions, which incorporates behavioural factors such as transactional patterns and changes in customer profile, can facilitate the detection of financial crime.

“For instance, illicit shell companies may change their shareholding and beneficial ownership structure, pivot from the original business activities declared to banks at account opening or have sudden high frequency or large unexplained transfers,” Ms Loo said.

“Identifying and acting quickly on such triggers, whether from singular factors or a combination of multiple red flags, could make a critical difference in stopping criminals before the damage is done.”

Governance processes

For FIs that have already integrated data analytics tools their AML/CFT processes, MAS encourages strong governance processes, to ensure that these tools remain relevant and effective

This includes the development of strong data governance frameworks and robust infrastructure to ensure that analytics tools run effectively, and in a scalable manner.

Ms Loo also said FIs should identify clear objectives and desired outcomes for the adoption of each analytics tool (e.g. risk prioritisation, surveillance, automation of information collation), to prevent the mis-application of the tools or model outside their intended purposes.

FIs should also measure the effectiveness of data analytics tools against the desired outcomes, in a systematic way, so as to enable them to identify and address any issues at an early stage.

Ms Loo said MAS will be working closely with the industry to provide additional guidance through an information paper on how FIs should implement strong governance processes the data analytics tools used in AML/CFT processes.

Emerging risks

On the need to stay vigilant to new risk areas, Ms Loo singled out virtual assets (known digital payment tokens, or DPTs in Singapore), which she said pose higher risks given the speed, anonymity and cross-border nature of the transactions they facilitate.

In addition to setting out clear supervisory expectations on AML/CFT controls for DPT service providers through the Payment Services Act, MAS has enhanced its in-house surveillance function to allow it to proactively detect suspicious networks and unlicensed activities in the DPT sector for further supervisory and law enforcement actions.

Another emerging risk area Ms Loo highlighted was the potential to misuse VCCs (Variable Capital Companies) as a “conduit for illicit purposes”. MAS plans to conduct thematic inspections of FIs that perform AML/CFT checks for VCCs to assess the robustness of the controls that are in place.

Information sharing

Ms Loo said work is underway with banks to explore how they can share key risk information with each other in a timely and secure manner.

Such sharing can help to facilitate the timelier detection of illicit behaviour, particularly in priority risk areas such as the misuse of shell companies, TBML (trade-based money laundering) and proliferation financing, she said.

“The US and UK, for example, already have legal frameworks in place to permit such sharing. We in Singapore will need to consider how such sharing can be effectively implemented within our local context.”

Describing the initiative as a “complex endeavour”, and a “game-changer” for AML/CFT, Ms Loo said MAS plans to be able to outline its intended approach to progress this work in the coming months.

Unfair exclusion

In closing, Ms Loo urged banks to avoid unfairly excluding consumers from banking services if they have been previously convicted or are suspected of committing financial crimes.

“From the bank’s perspective, the business case for retaining such customers may not be strong, given the potential risk of future misdemeanours and in some cases, the difficulty of establishing that the customers’ existing financial resources are legitimate,” she said.

“Yet, as a society and industry, we need to recognise that ‘de-risking’ of such individuals could significantly impact their lives and livelihoods and hinder their ability to re-integrate into society.”

Ms Loo suggests that banks should be more deliberate and targeted in their risk-treatment strategies, and avoid terminating accounts without having sufficiently considered if risks can be mitigated.

“Accounts should not be terminated solely on the basis of adverse news, and banks should make appropriate distinctions between customers who are convicted or suspected of financial crimes, and their family members or close associates.”

Customers should be given the opportunity to explain any behaviour the bank has assessed to be suspicious, and the bank should exit the relationship only if the residual risks cannot be adequately mitigated, she said.

Limited purpose bank accounts

In this spirit, Ms Loo said MAS is working with banks on introducing limited purpose bank accounts for individuals who are considered to pose higher financial crime risk.

This will allow such individuals to carry out banking transactions for daily needs, while managing risks by limiting inflows to those from white-listed sources, such as salaries and government pay-outs.

The operational details of these accounts are now being finalising with the banks, Ms Loo said.

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