A WARNING TO NAJIB, 1MDB & OTHER MONEY LAUNDERERS

SINGAPORE – Singapore’s drastic move to shutter yet another Swiss bank’s operations in the city-state underscores its willingness to take swift and tough actions against money laundering, industry watchers and lawyers told Channel NewsAsia.

On Tuesday (Oct 11), the Falcon Private Bank became the second casualty of an ongoing probe on fund flows linked to Malaysia’s 1MDB, after the Monetary Authority of Singapore (MAS) ordered the bank’s Singapore branch to stop operations for serious failures in anti-money laundering (AML) controls. This comes five months after Swiss private bank BSI’s local unit was shuttered for similar reasons, marking the first shutdown of a merchant bank in 32 years.

The central bank on Tuesday also slapped fines of S$1 million and S$1.3 million on DBS and UBS, respectively, for breaches of similar AML requirements.

In the statement, MAS’ managing director Ravi Menon said the board and senior management of financial institutions play a “pivotal role” in keeping Singapore a clean and trusted financial centre. He added that the central bank will work closely with the industry to upkeep standards and strong deterrent actions will be taken against institutions that fall short.

REGULATIONS ROBUST, BUT ENFORCEMENTS LAG

Experts said the uncovering of lapses in anti-money laundering controls should not be interpreted as a lack of adequate regulations in Singapore even though there have been challenges in the implementation and enforcement of such rules.

“I don’t think there are any problems with the regulations in Singapore or there’s any gap … but for regulations to work, enforcements have to be as powerful as the regulation regime,” said Ms Radish Singh, who leads Deloitte Financial Advisory Services’s Southeast Asia anti-money laundering and forensic team.

“Now, they are obviously taking this to the next level (by) moving to enforcement,” added Ms Singh, who noted that the MAS chose to “send the message and set the tone right” with the closure of Falcon Private Bank and BSI Bank due to their small portfolios in Singapore.

“Their AUM (assets under management) is small in Singapore (which means) the systemic impact on customers, the financial system and financial markets won’t be huge.”

For Mr Nizam Ismail, a partner in law firm RHTLaw Taylor Wessing, the latest moves by the financial regulator shows that it will not hesitate to take action against financial wrongdoings.

“The fines might not be in the same quantum as the ones imposed by regulators in the West which involve billions of dollars…. but the closure of a bank is a very extreme exercise of supervisory power,” said Mr Nizam. “That is a clear signal that AML breaches will not be tolerated.”

Experts reckoned that the Financial Action Task Force’s (FATF) recent report, which highlighted “moderate gaps” in Singapore’s fight against money laundering and terrorism financing, could have been an additional catalyst for MAS’ actions.

Said compliance lawyer Tan Sin Liang: “With FATF’s remarks and the developments surrounding 1MDB, you can imagine the kind of pressure that MAS has and they will in turn pressure banks to increase the robustness in their AML controls.”

A DENT ON SINGAPORE’S FINANCIAL REPUTATION?

Earlier in July, MAS’ Mr Menon noted that the scandal surrounding Malaysia’s state investment fund has “made a dent” in Singapore’s reputation as a clean and trusted financial centre.

When Channel NewsAsia raised this questions to the experts, there were mixed opinions.

“There’s a slight dent in terms of our reputation … but to be fair, what Singapore has gone through is really an occupational hazard of being an international financial centre where it attracts fund flows globally and across the region,” Mr Nizam said.
For experts who disagreed, they reckon that the MAS has taken steps to cover up exposed weaknesses.
“It does not tarnish the reputation of Singapore and in fact, what it demonstrates is the fact that we mean business,” said Ms Singh from Deloitte. “As a regulator, they don’t mince their words and if financial institutions don’t comply to their standards, this is what they will do to ensure that these institutions operate in the way as expected.”

MORE REGULATORY ACTION TO COME

Moving forward, industry watchers are expecting more regulatory action to come from the MAS.
In particular, the financial regulator has yet to finalise its assessment of the local unit of Standard Chartered Bank. It said on Tuesday that it will make an announcement in due course.
As the regulatory pressure mounts, experts say small private banks will likely feel the heat most amid rising cost pressure.
“For small private banks, more specifically financial crime compliance is going to become more expensive, so they will have to rethink their strategy,” said Ms Singh, who expects the industry to see some form of consolidation and a sale of assets by some private banks.
Mr Tan even expects the MAS to possibly rethink its criteria for the issuance of banking licenses, especially for small private banks.
“I think the key now is not about competing for the wealth management market. The game has changed with the 1MDB probe … MAS may be rethinking its strategy and they will not be approving licenses for these small private banks like they did.
“And I think it’s not going to be just about the banks, but other financial institutions like remittances as well,” Mr Tan added.
– CNA/sk