Additional Guidance on Assessment of Customer Risk, Identification of Material Red Flags etc

Dear Regulated Dealer

To further strengthen the anti-money laundering, countering the financing of terrorism and countering proliferation financing (“AML/CFT/CPF”) controls in the Precious Stones and Precious Metals Dealers (“PSMD”) sector, we have prepared a guidance document which outlines additional supervisory expectations for regulated dealers to the Guidance Paper issued on 16 Jun 2021. Observations from recent AML/CFT/CPF inspections of regulated dealers have highlighted areas where a more robust and consistent approach should be taken in relation to the regulated dealers’ application of their AML/CFT/CPF controls in certain areas.

A. Assessment of Customer Risk

Consider money laundering, terrorism financing and proliferation financing (“ML/TF/PF”) risks emanating from customers with ML/TF/PF red flags.

Some examples of material red flags that were followed up by regulated dealers:

• A customer who returned on the same day to purchase more gold bars in cash, which was not usual in that instance.

• A purchase of gold bars using Bitcoin with intention of selling back the gold bars immediately for a payout to a bank account.

• A purchase and sale back of gold bars within a short period of time, incurring losses.

• A payment for a luxury watch received from multiple bank accounts.
  

After performing further due diligence measures, suspicious transaction reports (“STRs”) were filed by the regulated dealers in relation to some of these customers.

B. Source of Wealth (“SOW”) establishment

Apply rigor in assessing the plausibility of SOW, commensurate with the level of ML/TF risks.

Example of a good practice:

A regulated dealer noted that the payments for a customer’s jewellery were to be received from a third-party company. The regulated dealer enquired on the relationship between the customer and the company and requested the customer to furnish the company ownership reports to support his claim that he owned the company.

C. Ongoing Monitoring Controls and Close Oversight over Higher Risk Accounts

Ensure that ongoing monitoring controls consider the customer’s risk profile.

In addition to the enclosed guidance document, we will also like to bring regulated dealers’ attention to the following additional guidance on STR filing timelines:

STR Filing Timelines 

STRs should be filed as soon as reasonably practicable upon the establishment of suspicion.

• “As soon as reasonably practicable” should be no longer than 5 business days.

• This will include some flexibility for exceptions. e.g. Prioritise STR filing for higher risk cases; and STRs for targeted financial sanctions/ sanctions cases are to be filed within 1 business day, if not immediately.
  

The additional guidance above will also be included in the next revised copy of the Guidelines for Regulated Dealers that will be published.

What Can You Do?

This set of further guidance does not impose new regulatory requirements on regulated dealers. 

However, regulated dealers should benchmark this guidance against the practices and supervisory expectations set out within, in a risk-based and proportionate manner, and conduct a gap analysis, taking into account the risk profile of their business activities and customers. 

Where gaps are identified, regulated dealers should remediate or enhance their AML/CFT/CPF framework and controls in a timely manner. 

Senior management should exercise close oversight of the gap analysis and ensure the effective implementation of follow-up actions, as appropriate.

Thank you.

Anti-Money Laundering/Countering the Financing of Terrorism Division
Ministry of Law