Do You Know Your KYC? – An introduction to Singapore’s AMLCFT framework and KYC requirements

Written by Ian Tan Zhi Yan

Singapore has in place a strict framework of regulations and requirements in relation to anti-money laundering and countering the financing of terrorism. Under MAS regulations, FIs have a responsibility to detect, deter, and prevent money laundering, terrorism financing, fraud, and various illicit activities. This is translated to obligations on fund managers, financial advisers, insurance brokers, trust managers, and payment service providers to have in place a robust KYC checks.

KYC is short for Know-Your-Customer. It is a basic requirement required by the Anti-Money Laundering and Countering the Financing of Terrorism (AMLCFT) framework prescribed by Monetary Authority of Singapore (MAS). KYC is an ongoing process of ascertaining and verifying the identity of a customer – before establishing business relations and during the duration of that business relations. A good example of this is bank’s identity verification practice to assess and monitor risks.

KYC is a standard business practice within the financial industry. The checks are to protect all stakeholders involved, and the business interests of onboarding entities. The driving force behind the implementation of KYC is – if a business complies with KYC or AMLCFT policies, they will significantly reduce the risks that arise out of their business arrangements with particular clients. Many seasoned investors see KYC checks as a necessary process that builds trust and mitigates risk. Although these rigorous checks can be burdensome, they create a secure and trustworthy environment to enable financial or investment activities. As such it has become a quintessential part of the Capital Markets landscape in Singapore. So what does KYC entail? While the exact list of documents and background checks varies depending on the constitution of the customer (are they a natural person or legal arrangement etc.). Minimally, KYC processes seek to allow the person carrying it out to ascertain and verify the identity of the customer. It will usually entail the collection and verification of identification documents such as Government-Issued ID such as passports or drivers licenses for individuals and documents such as articles of incorporation and licenses for corporates. Once the customers’ identity is verified, their identity will be flushed through an appropriate database to ascertain is there are current sanctions that apply to them, if they are Politically Exposed Persons (PEPs), and to ascertain the appropriate risk rating.

The rigour with which KYC checks are to be conducted are commensurate to the risk of the transaction. Put simply, a larger transaction equals higher risks, and a more thorough check is required. The onboarder would have to consider the source of the customers’ wealth or funds if not the customers’ complete financial portfolio, credit ratings and background. At the end of a KYC check, onboarding entities should document the results and the reasoning behind it. These documents should be logged appropriately to fulfil record retention requirements.

It is a vital that FIs avoid establishing business relationships or deal, manage or accept fund that have come from shady or illegal activities. For more help with KYC or AMLCFT, please do not hesitate to contact us.

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