SINGAPORE — The AML/CFT Industry Partnership (ACIP) has released a comprehensive guidance paper titled “Best Practices on Source of Wealth Due Diligence”, representing a significant industry milestone in strengthening the capacity of financial institutions (FIs) to identify, assess, and corroborate the Source of Wealth (SoW) of customers. This comes amid heightened regulatory expectations and a recognition that financial crime risks are not confined to high-net-worth segments.
The paper, developed in collaboration with the Monetary Authority of Singapore (MAS) and various financial institutions, builds upon MAS’ 2024 Circular AMLD 08/2024 and inspection insights. It introduces a practical framework for applying SoW due diligence in a risk-proportionate manner across private banking, retail, and corporate segments. It marks an important evolution in Singapore’s anti-money laundering and countering the financing of terrorism (AML/CFT) regime.
A Risk-Based, Tiered Approach
At the core of the paper is a strong advocacy for a “same risk, same control” philosophy. ACIP recommends that the intensity of SoW due diligence be driven by the customer’s inherent money laundering/terrorism financing (ML/TF) risk — rather than the banking segment they fall under. This is a departure from legacy practices that often reserved rigorous SoW corroboration for private banking clients alone.
The paper proposes a tiered approach to SoW due diligence:
Private Banking and Wealth Management: Given the higher inherent ML/TF risks associated with large asset flows, complex structures, and international exposure, FIs in this segment are expected to establish and corroborate SoW for all clients. The paper outlines expectations for assessing business ownership, investment gains, employment income, and inheritance with a focus on plausibility, materiality, and prudence.
Retail Banking: A two-tier system is suggested. Tier 1 represents baseline SoW due diligence where basic SoW information is collected for initial understanding. Tier 2 involves full corroboration and is triggered for higher-risk customers, including foreign PEPs and those with adverse media, unusually high assets under management (AUM), high transaction throughput, or unusual net worth indicators. Notably, retail clients with multiple nationalities from jurisdictions offering “golden passports” or complex transactional footprints may also trigger heightened scrutiny.
Corporate Banking: SoW risk is evaluated both at the entity and beneficial ownership level. Entities subject to transparency obligations (e.g., publicly listed firms, regulated FIs) may fall under Tier 1. However, entities that channel significant personal wealth, such as private investment companies, family offices, and trusts, or those with opaque structures or connections to high-risk geographies, should be assessed under Tier 2. The paper also provides a detailed matrix categorising various types of entities and corresponding SoW treatment.
Guiding Principles: Materiality, Relevance, and Prudence
The paper introduces a “waterfall logic” to SoW corroboration. FIs should prioritise:
Materiality: Focus on wealth components that are material either in relative terms (largest share of net worth) or causatively (seed capital enabling subsequent accumulation).
Relevance: Corroborative evidence should be pertinent and fit-for-purpose, ideally sourced independently and verified where possible.
Prudence: FIs should exercise professional scepticism and not equate the mere collection of documents with successful corroboration. Documents should be analysed for plausibility, consistency, and potential red flags.
ACIP emphasises that benchmarks — such as industry averages or assumed savings rates — can aid in plausibility assessments but must not replace actual corroboration. These should be used carefully and documented thoroughly.
Sector-Specific Best Practices
The paper dives deeply into SoW types that pose verification challenges, offering best practices and case studies to guide implementation.
Inheritance and Gifts
Inheritance and intergenerational gifting remain among the most cited SoW types, but often lack formal documentation. Recommended practices include verifying the relationship with the asset contributor, assessing the plausibility of their wealth, and triangulating claims with public records (e.g., wills, probate filings, public employment history). The paper stresses sensitivity in such investigations, especially where cultural norms are involved.
Business Ownership
Establishing SoW from business ownership is complex, particularly for private firms. FIs are encouraged to seek audited financials, use independent benchmarks, perform site visits, and analyse public records for corroboration. The paper details challenges such as nominee arrangements, unrealistic valuation claims, and inconsistent documentation — urging heightened scrutiny in such cases.
Investment Gains
This is an area highly susceptible to misuse, especially due to the ease with which individuals can construct ex-post narratives involving lucrative but unverifiable investments. FIs are advised to request portfolio statements, scrutinise returns for plausibility, verify consistency over time, and corroborate investment strategies against customer profiles. Where digital assets are involved, additional steps such as blockchain analysis, wallet verifications, and video evidence may be required.
Sale of Hard-to-Value Goods
NFTs, domain names, art, and antiques pose valuation and legitimacy risks. The paper offers real-world case examples involving suspicious sale-and-purchase agreements, inflated valuations, and unverifiable ownership claims. FIs should approach such SoW claims with scepticism, perform open-source research, and consult subject matter experts where needed.
Employment Income
Where SoW is derived from career earnings, FIs should cross-reference claimed salaries against industry standards, account for changes in role seniority over time, and verify documentation authenticity. Long-dated employment claims may need supporting evidence from tax records or third-party attestations.
Risk Mitigation for Low-Risk Customers
Where full corroboration is not required (e.g., baseline SoW due diligence), ACIP recommends risk-mitigating controls, such as:
- Cross-referencing claims with public information;
- Analysing internal transactional data;
- Monitoring customer behaviour through ongoing reviews;
- Escalating unexplained inconsistencies for management review.
These measures ensure a proportionate response while maintaining customer experience.
Governance, Monitoring, and Escalation
The paper reinforces the need for strong governance over SoW practices, including:
- Clearly defined risk appetite statements;
- Tiered escalation frameworks for unresolved SoW concerns;
- Documented rationale where risk ratings remain unchanged despite new information;
- Periodic reviews and trigger-based reassessments to keep SoW data current.
Senior management is expected to play a key role in endorsing decisions involving complex or unresolved SoW matters, especially where onboarding or retention decisions hinge on judgement calls.
Strengthening Singapore’s AML/CFT Ecosystem
ACIP’s publication is a timely intervention. In recent years, high-profile money laundering cases have underscored the risks posed by unchecked inflows of illicit wealth into Singapore. This paper equips FIs with robust tools to address such risks, ensuring that due diligence is both rigorous and proportionate.
The paper also provides clarity on how to operationalise MAS expectations, bridging the gap between principle-based regulations and frontline implementation. It is expected to become a foundational reference for compliance officers, relationship managers, risk practitioners, and auditors involved in customer due diligence.
Conclusion
ACIP’s Best Practices on Source of Wealth Due Diligence represents a landmark effort to harmonise SoW practices across Singapore’s financial sector. By grounding SoW due diligence in a risk-based, evidence-driven framework, it aims to close systemic vulnerabilities, promote greater consistency, and reinforce Singapore’s reputation as a trusted financial hub.
As financial criminals continue to innovate, so too must the industry’s defences. This paper is not only a guidance document but a strategic roadmap for strengthening the integrity of Singapore’s financial system.
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