Singapore regulatory enforcement update: Q2 2016

Q2 Highlights

Key areas of regulatory focus: market misconduct, anti-money laundering and changes to enforcement approach

• Enforcement actions for insider trading

• In the context of 1MDB, MAS closes Swiss bank subsidiary for AML controls breaches and imposes fine of SGD13.3 million, with further banks being investigated

• MAS sets up dedicated AML and Enforcement departments to combat money laundering and strengthen enforcement

• Dawn raids in market misconduct probe, using new powers

Enforcement actions for insider trading

The Monetary Authority of Singapore (MAS) has taken enforcement action against an individual and an asset manager for insider trading. As well as civil penalties for both, the individual gave a voluntary undertaking not to be involved in the management of a company for one year. This is the third time this year the MAS has taken enforcement action for insider trading, a key enforcement priority for 2016.

MAS closes Swiss bank subsidiary for AML controls failures and imposes fine of SGD13.3 million

On 24 May 2016, the MAS announced that it had served BSI Bank Limited notice of intention to withdraw its status as a merchant bank in Singapore for serious breaches of anti-money laundering requirements, poor management oversight of the bank’s operations, and gross misconduct by some of the bank’s staff.

The MAS said BSI Bank's Singapore subsidiary was responsible for 41 breaches of AML regulations, for which the bank has been fined SGD13.3 million, and that its investigations had revealed "a pervasive pattern of non-compliance". MAS’ decision to withdraw BSI Bank’s status as a merchant bank takes into account the repetitive lapses as well as the 2015 inspection findings which revealed widespread control failures.

Ravi Menon, Managing Director of the MAS, said “BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector. It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously. Controls need to be robust, surveillance vigilant, and the management culture must emphasise professional integrity and risk consciousness.”

In addition, six former staff members at the bank were referred to Singapore's public prosecutor.

This enforcement action is consistent with the MAS’ focus on AML controls and its warnings in the last 18 months that it will take strong action for failures in this area.

MAS is conducting supervisory reviews of several other financial institutions in connection with 1MDB. It has said it will take regulatory action, but it is not yet clear what form that action will take.

MAS sets up dedicated departments to combat money laundering and strengthen enforcement

This focus on AML and enforcement was reinforced on 13 June 2016, when the MAS announced the setting up of dedicated departments to combat money laundering and strengthen enforcement.

The MAS has formed a dedicated AML Department that will streamline the existing responsibilities for regulatory policies relating to money laundering and other illicit financing risks.

A separate department will also be set up to centralise and strengthen the MAS’ enforcement functions. The new Enforcement Department will be responsible for enforcement actions arising from regulatory breaches of MAS’ banking, insurance and capital markets regulations. The new department will continue to jointly investigate capital markets misconduct offences with the Commercial Affairs Department (CAD).

The changes took effect from 01 August.

Dawn raids launched in market misconduct probe

On 22 April, officers from the MAS and the CAD conducted a number of raids of several broking houses in connection with potential market misconduct. The raids came weeks after the Singapore Exchange (SGX) released a statement that it had referred nine cases to the MAS of which three were related to insider trading and six to market manipulation. The MAS declined to say if the raids were linked to the SGX cases referred to it in the first quarter.

Dawn raids can be easily mishandled, with potentially serious consequences. While raids are usually unannounced, knowing how to react can make a material difference in the outcome of the raid and any subsequent investigation. We recently hosted a seminar on practical tips for responding to dawn raids, which can be found here.