Dubbed Cosmic, which is short for Collaborative Sharing of Money Laundering/Terrorism Financing Information and Cases, the information-sharing framework will be jointly developed by MAS and six major commercial banks in Singapore – DBS, OCBC, UOB, Standard Chartered Bank, Citibank and HSBC.
Banks that agree to share details of customers suspected of money laundering on a proposed digital platform will be allowed to do so voluntarily in its initial phase. The Monetary Authority of Singapore (MAS) said the platform will also need time to reach operational stability.
A Bill to amend the Financial Services and Markets Act to set up Cosmic and set out rules governing its initial phase was put up for first reading in Parliament by Minister of State for Trade and Industry Alvin Tan on Monday (20/3/2023).
MAS earlier said, in a brief released on Monday, that it plans to make some aspects of information sharing mandatory and progressively extend Cosmic’s coverage to more areas and financial institutions in subsequent phases.
Jointly developed by MAS and six major banks in Singapore, Cosmic will allow enrolled institutions to request and share information on customers whose banking habits raise multiple red flags pointing to possible criminal activities.
The six banks – DBS, OCBC, UOB, Standard Chartered, Citibank and HSBC – will be the first to use Cosmic, which aims to thwart financial criminals who avoid detection through an ever-shifting web of accounts.
Cosmic will operate alongside existing requirements for all financial institutions to have robust controls to detect and prevent suspicious activity, as well as report such activity to the Suspicious Transaction Reporting Office of the Commercial Affairs Department (CAD), said MAS.
The proposed platform will initially focus on three key risks in commercial banking: abuse of shell companies; misuse of trade finance for illicit purposes; and financing that supports the proliferation of weapons of mass destruction.
The thresholds and red flags for suspicious banking behaviour will be based on past global and domestic cases in the key risk areas, but will remain confidential to prevent tipping off offenders.
The red flags could include signs of a fictitious company profile, financial transactions without a clear economic purpose such as “round tripping” funds back to the sender, inconsistent replies to queries, or seemingly-unrelated companies that actually have the same beneficial owners doing business with each other.
The thresholds will be adjusted over time as criminals’ methods evolve, MAS said.
“DBS is currently integrating its technology platform and operational processes with Cosmic, and is excited with the new capability to improve – in a very controlled way – information sharing between banks, regulators and law enforcement,” said Mr Lam Chee Kin, managing director and head of legal and compliance at DBS.
Sophisticated criminals use a variety of ways to conceal information to and between banks to impair investigations, and no single bank can unravel the whole scheme, he added. “So Cosmic, in facilitating controlled information sharing, helps to mitigate one of the weapons the criminal has.”
A Standard Chartered spokesman said Cosmic and the regulatory framework enabling it will serve as an important platform to strengthen the financial crime detection capabilities of all industry players here. “Together, financial institutions can collaborate and share information on specific transactions, and support MAS and CAD to detect and intervene in illicit networks operating in the financial system and more effectively combat financial crimes.”
Despite closely supervising and working with financial institutions to strengthen Singapore’s defences against the three key risks, MAS said a remaining weakness in the effective detection of illicit financial flows lies in the inability of FIs to alert one another 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.”
Cosmic 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”, said MAS. “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.”
Key Features of the Bill
Outlining the key features of the Bill in its brief, MAS said information-sharing will be permitted only 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.
“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 Bill will, therefore, permit the sharing of information solely for the purposes of mitigating money laundering, terrorism financing and proliferation financing risks. Moreover, the sharing on Cosmic supersedes any restrictions on the disclosure of customer information that any written law or contract may impose, said MAS.
It added: “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.”
The Bill also provides for tight controls on the disclosure of information obtained from Cosmic by participating FIs, both internally and to others. The FIs will be required to establish systems and implement processes to keep this information confidential, guarding against unauthorised use and disclosure of information. “This includes implementing cyber-security measures and limiting access to any risk information obtained from Cosmic to relevant staff on a need-to-know basis.”
A third aspect of the Bill is the statutory immunity from civil suits it provides to FIs that disclose risk information on Cosmic. However, this is subject to the disclosure being made with reasonable care and in good faith, and in accordance with the disclosure thresholds, MAS said. “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.”
Furthermore, the 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 (Suspicious Transaction Reporting Office), 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.”
Source: [editoral comment: original article] Singaporelawwatch
