MAS - Monetary Authority of Singapore
MAS - Monetary Authority of Singapore
03/20/2023 | News release | Distributed by Public on 03/19/2023 23:13
Explanatory Brief for Financial Services and Markets (Amendment) Bill 2023
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Published Date: 20 March 2023
Explanatory Brief for Financial Services and Markets (Amendment) Bill 2023
1 Minister of State, Ministry of Culture, Community and Youth and Ministry of Trade and Industry, Mr Alvin Tan, on behalf of Senior Minister and Minister-in-charge of the Monetary Authority of Singapore ("MAS"), Mr Tharman Shanmugaratnam, today moved the Financial Services and Markets (Amendment) Bill ("FSM(A) Bill") for First Reading in Parliament.
BACKGROUND
2 Protecting our financial system from criminal abuse is crucial to maintaining the integrity and reputation of Singapore's financial centre. Over the years, MAS has closely supervised and worked with financial institutions ("FIs") to strengthen Singapore's defences to prevent money laundering ("ML"), terrorism financing ("TF"), and proliferation financing ("PF"). However, a remaining weakness in the effective detection of illicit financial flows lies in the inability of FIs to alert each other to unusual activity in their customers' accounts. Financial criminals exploit these "information silos" by making illicit transactions through a web of accounts in different FIs and moving from one FI to another to avoid detection.
3 To address this gap, MAS will establish and maintain a secure digital platform for FIs to share information on customers that exhibit multiple red flags indicative of potential illicit activities with each other. This platform, named COSMIC (short for "Collaborative Sharing of ML/TF Information & Cases"), will enable FIs to conduct sharper analysis of customer behaviours and activities to detect potential illicit activities more promptly and warn each other of such activities. By eliminating the information gaps between FIs, it will be easier to detect criminals. A legislative framework will need to be introduced, to enable and govern COSMIC.
4 The information-sharing framework will be jointly developed by MAS and six major commercial banks in Singapore - DBS, OCBC, UOB, SCB, Citibank, and HSBC. COSMIC will initially focus on three key financial crime risks in commercial banking - abuse of shell companies, misuse of trade finance for illicit purposes, and PF. The six banks will be permitted to share information on COSMIC during this initial phase. MAS plans to make some aspects of sharing mandatory and progressively extend COSMIC's coverage to more focus areas and FIs in subsequent phases.
5 MAS conducted a public consultation on the proposed FSM(A) Bill in October 2021. Respondents were generally supportive of the proposals, and MAS has incorporated their feedback in the FSM(A) Bill where appropriate.
KEY ASPECTS OF THE FSM(A) BILL
6 The FSM(A) Bill sets out the provisions for the initial phase for COSMIC only, during which all sharing will be on a voluntary basis. The key features of the FSM(A) Bill are outlined below.
(A) Permit sharing only for the mitigation of ML, TF and PF risks
7 The sharing of customer information amongst FIs must be conducted within a robust legal framework that safeguards the interests and privacy of legitimate customers. The FSM(A) Bill will therefore permit the sharing of information solely for the purposes of mitigating ML, TF and PF risks. Such sharing may be done despite any restrictions that may be imposed by any written law or contract.
8 Information sharing will also only be permitted if the customer's behaviour or transaction activities exhibit pre-determined red flags that cross stipulated thresholds, suggesting that potential financial crime could be taking place. For the vast majority of individuals and companies that are legitimate and do not exhibit risky behaviours, FIs will neither have a reason to share their customers' information nor will they be permitted to.
(B) Tight controls to safeguard information security and confidentiality
9 The FSM(A) Bill will allow participant FIs to share information via COSMIC. To ensure the confidentiality of the information disclosed on COSMIC, FIs will be prohibited from disclosing the information obtained from COSMIC except in certain specified circumstances. The FIs will also be required to establish systems and implement processes to keep the information obtained from COSMIC confidential and guard against unauthorised use and disclosure of information. This includes implementing cybersecurity measures and limiting access to any risk information obtained from COSMIC to relevant staff on a need-to-know basis.
(C) Statutory protection against civil liabilities for disclosures on COSMIC
10 The FSM(A) Bill will provide statutory protection from civil liability for FIs in respect of their disclosure of risk information onto COSMIC, provided that the disclosure was made with reasonable care and in good faith, and in accordance with the disclosure thresholds. This will provide FIs confidence that legitimate information sharing to highlight higher risk customers and their related activities will not expose them to civil suits.
(D) Access and use of COSMIC information by MAS and the Suspicious Transaction Reporting Office ("STRO") for AML/CFT purposes
11 The FSM(A) Bill will allow MAS access to information on COSMIC for supervisory purposes, including to monitor if FIs are using the platform appropriately and to identify necessary adjustments to improve effectiveness. COSMIC information, including material networks of suspicious actors that are escalated to MAS, will be integrated into MAS' overall surveillance framework to target higher risk activities in the financial system for supervisory intervention. The STRO , Singapore's Financial Intelligence Unit, will have direct access and be able to use COSMIC information as an additional data source for its own analysis.
BACKGROUND
2 Protecting our financial system from criminal abuse is crucial to maintaining the integrity and reputation of Singapore's financial centre. Over the years, MAS has closely supervised and worked with financial institutions ("FIs") to strengthen Singapore's defences to prevent money laundering ("ML"), terrorism financing ("TF"), and proliferation financing ("PF"). However, a remaining weakness in the effective detection of illicit financial flows lies in the inability of FIs to alert each other to unusual activity in their customers' accounts. Financial criminals exploit these "information silos" by making illicit transactions through a web of accounts in different FIs and moving from one FI to another to avoid detection.
3 To address this gap, MAS will establish and maintain a secure digital platform for FIs to share information on customers that exhibit multiple red flags indicative of potential illicit activities with each other. This platform, named COSMIC (short for "Collaborative Sharing of ML/TF Information & Cases"), will enable FIs to conduct sharper analysis of customer behaviours and activities to detect potential illicit activities more promptly and warn each other of such activities. By eliminating the information gaps between FIs, it will be easier to detect criminals. A legislative framework will need to be introduced, to enable and govern COSMIC.
4 The information-sharing framework will be jointly developed by MAS and six major commercial banks in Singapore - DBS, OCBC, UOB, SCB, Citibank, and HSBC. COSMIC will initially focus on three key financial crime risks in commercial banking - abuse of shell companies, misuse of trade finance for illicit purposes, and PF. The six banks will be permitted to share information on COSMIC during this initial phase. MAS plans to make some aspects of sharing mandatory and progressively extend COSMIC's coverage to more focus areas and FIs in subsequent phases.
5 MAS conducted a public consultation on the proposed FSM(A) Bill in October 2021. Respondents were generally supportive of the proposals, and MAS has incorporated their feedback in the FSM(A) Bill where appropriate.
KEY ASPECTS OF THE FSM(A) BILL
6 The FSM(A) Bill sets out the provisions for the initial phase for COSMIC only, during which all sharing will be on a voluntary basis. The key features of the FSM(A) Bill are outlined below.
(A) Permit sharing only for the mitigation of ML, TF and PF risks
7 The sharing of customer information amongst FIs must be conducted within a robust legal framework that safeguards the interests and privacy of legitimate customers. The FSM(A) Bill will therefore permit the sharing of information solely for the purposes of mitigating ML, TF and PF risks. Such sharing may be done despite any restrictions that may be imposed by any written law or contract.
8 Information sharing will also only be permitted if the customer's behaviour or transaction activities exhibit pre-determined red flags that cross stipulated thresholds, suggesting that potential financial crime could be taking place. For the vast majority of individuals and companies that are legitimate and do not exhibit risky behaviours, FIs will neither have a reason to share their customers' information nor will they be permitted to.
(B) Tight controls to safeguard information security and confidentiality
9 The FSM(A) Bill will allow participant FIs to share information via COSMIC. To ensure the confidentiality of the information disclosed on COSMIC, FIs will be prohibited from disclosing the information obtained from COSMIC except in certain specified circumstances. The FIs will also be required to establish systems and implement processes to keep the information obtained from COSMIC confidential and guard against unauthorised use and disclosure of information. This includes implementing cybersecurity measures and limiting access to any risk information obtained from COSMIC to relevant staff on a need-to-know basis.
(C) Statutory protection against civil liabilities for disclosures on COSMIC
10 The FSM(A) Bill will provide statutory protection from civil liability for FIs in respect of their disclosure of risk information onto COSMIC, provided that the disclosure was made with reasonable care and in good faith, and in accordance with the disclosure thresholds. This will provide FIs confidence that legitimate information sharing to highlight higher risk customers and their related activities will not expose them to civil suits.
(D) Access and use of COSMIC information by MAS and the Suspicious Transaction Reporting Office ("STRO") for AML/CFT purposes
11 The FSM(A) Bill will allow MAS access to information on COSMIC for supervisory purposes, including to monitor if FIs are using the platform appropriately and to identify necessary adjustments to improve effectiveness. COSMIC information, including material networks of suspicious actors that are escalated to MAS, will be integrated into MAS' overall surveillance framework to target higher risk activities in the financial system for supervisory intervention. The STRO , Singapore's Financial Intelligence Unit, will have direct access and be able to use COSMIC information as an additional data source for its own analysis.