The Monetary Authority of Singapore (MAS) has issued guidelines for Financial Institutions (FIs) to establish and corroborate the Source of Wealth (SoW) of customers, particularly those assessed to pose higher money laundering/ terrorism financing (ML/TF) risks. This page outlines industry best practices for SoW due diligence across private banking, retail banking, and corporate banking sectors, emphasising a risk-based, tiered approach to ensure effective risk mitigation and high standards of AML/CFT (Anti-Money Laundering/ Countering the Financing of Terrorism) controls.
What are the industry best practices for enhancing SoW due diligence and achieving AML/CFT excellence?
Guiding principles
- FIs must adopt a "same risk, same control" approach, applying similar levels of SoW due diligence to customers presenting higher SoW risks, regardless of the banking segment.
- The level of corroborative evidence required is case-specific and depends on various factors, including the materiality, relevance, and prudence of the SoW.
Tiered approach to SoW risk identification and corroboration
- Private banking and wealth management: Inherently higher ML/TF risks due to customer attributes and transaction sizes. FIs must establish SoW for all customers and beneficial owners through detailed background checks and corroborative evidence.
- Retail banking: Generally lower risk, allowing for a two-tiered approach:
- Tier 1 – Baseline SoW due diligence: For customers posing wealth risk, collect basic SoW information.
- Tier 2 – Full SoW due diligence: For customers with material/high wealth risk, collect and corroborate additional SoW information.
- Corporate banking: Similar two-tiered approach, focusing on entity-level SoW due diligence for high-risk customers and full SoW due diligence for those with significant personal wealth exposure.
Execution of risk mitigation and SoW corroboration
- FIs should adopt risk-based approaches and implement suitable risk mitigation controls for customers assessed as having lower SoW risks.
- Best practices for corroborating common SoW types include:
- Inheritances and gifts: Use public information, third-party confirmations, and plausibility assessments.
- Business ownership: Compare financial statements to industry averages and conduct additional due diligence if concerns arise.
- Investment gains: Utilise public resources to validate historical performances and understand the customer's investment strategy.
- Sale of goods: Conduct plausibility assessments and verify the legitimacy of sales processes.
- Employment income: Compare income to industry averages and conduct additional due diligence if discrepancies are identified.
Ongoing monitoring
- FIs must continuously monitor and re-assess SoW risks throughout the customer relationship lifecycle.
- Technological enablers, such as data analytics and artificial intelligence, can enhance the effectiveness of ongoing monitoring and risk detection.
Senior management oversight
- Senior management is responsible for defining risk appetite and parameters for SoW due diligence.
- Clear escalation and approval processes should be established for cases where SoW corroboration is challenging or residual risks are identified.
- Regular risk reporting and a close feedback loop ensure effective oversight and timely decision-making.
How can we effectively self-evaluate to transform our best practices and ensure regulatory compliance?
To effectively implement the best practices and meet regulatory expectations, FIs should consider the following key questions:
Risk assessment and segmentation
- Have we adopted a risk-based, tiered approach to SoW due diligence across all customer segments (private, retail, corporate)?
- Are our risk identification and mitigation controls aligned with the “same risk, same control” principle, regardless of business segment?
- Do we have clear criteria for when to escalate SoW risks for senior management review?
SoW corroboration and documentation
- Are we able to distinguish between source of wealth and source of funds in our due diligence processes?
- Do we have robust processes to corroborate SoW, especially for higher-risk customers (e.g., PEPs, customers with complex structures, or those from high-risk jurisdictions)?
- Are we using independent, reliable, and relevant documentation to support SoW assessments, and do we have guidelines for when alternative evidence is acceptable?
Ongoing monitoring and review
- How do we ensure that SoW information remains current and relevant throughout the customer lifecycle?
- Are our ongoing monitoring systems capable of detecting changes in customer profile, transaction patterns, or other risk triggers that may necessitate a re-assessment of SoW?
- Do we have mechanisms for information sharing across business units to ensure a holistic view of customer risk?
Governance and escalation
- Is our governance framework clear on when and how to escalate SoW issues to senior management?
- Are risk appetite and escalation thresholds well-defined and documented?
- Do we have portfolio-level reporting to provide senior management with a holistic view of SoW risks?
Practical challenges and mitigating controls
- How do we address practical challenges in corroborating SoW, such as long-dated wealth, lack of documentation, or hard-to-value assets?
- Are we leveraging technology and data analytics to enhance SoW risk detection and monitoring?
- Do we have clear guidelines for the use of benchmarks, assumptions, and professional judgment in SoW assessments?
How can we help?
We leverage deep regulatory expertise, industry knowledge, and technology capabilities, to help FIs strengthen their SoW due diligence frameworks, enhance risk management, and ensure compliance with MAS and global AML/CFT standards through a range of tailored services:
Contact us
Julia Leong
Banking and Capital Markets Risk Services Leader, PwC Singapore
Thangaraja Nada Raja
Partner, Regulatory Risk and Compliance (Banking), PwC Singapore
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