Fighting financial crime with data analytics

The Monetary Authority of Singapore has observed that criminals continue to misuse front companies to trade with prohibited entities or countries.
The Monetary Authority of Singapore has observed that criminals continue to misuse front companies to trade with prohibited entities or countries. PHOTO: ST FILE

MAS has used method to flag suspicious fund flow networks, focus on higher-risk activities

The Monetary Authority of Singapore (MAS) is using data analytics and information sharing within the financial industry to combat financial crime.

Speaking at a financial crime seminar held by the Association of Banks in Singapore, Ms Ho Hern Shin, MAS' assistant managing director, banking and insurance group, said the regulator has applied data analytics to suspicious transaction reports, which number over 25,000 annually.

These reports are flagged by financial institutions due to suspicions over illicit fund flows. "Applying data analytics to this data set has enabled us to identify suspicious fund flow networks, and focus our supervisory attention on networks of higher-risk accounts, entities or activities," she added.

MAS will also glean better machine readability of the reports' data when a revised form and reporting platform is introduced next month. Ms Ho said a report is forthcoming from an industry working group on data analytics applications.

The regulator has observed that criminals continue to misuse front companies to trade with prohibited entities or countries. This is known as proliferation financing.

Some banks - which were not identified by Ms Ho - have now been nudged into taking additional measures to identify and mitigate their proliferation financing risks.

These include corroborating shipping information provided by customers with sources from third-party service providers, such as Lloyd's List and the International Maritime Bureau.

BALANCED APPROACH

It is important to strike a balance between addressing money laundering and terrorism financing risks and meeting basic banking needs. Banks should not avoid entire classes of customers altogether.

MS HO HERN SHIN, MAS' assistant managing director, banking and insurance group, on the risk of financial exclusion.

"Some banks have also taken proactive steps to conduct a comprehensive review of their customer databases, to identify customers who have previously transacted with individuals or entities of proliferation concern, for closer scrutiny and review," she said.

Ms Ho added that a private-public partnership on money laundering and terrorism financing, launched in April last year, "has been helpful" but could be improved through the sharing of more detailed context, so financial institutions can mount more targeted checks.

While there has been greater use of digital technology to suss out financial crime, there is a risk of financial exclusion. In this regard, Ms Ho stressed that banks have a role in providing access to basic financial services, including to former offenders.

This comes as the regulator has occasionally received feedback from former offenders who have been denied a bank account. "Even though Singapore is a highly banked country, there are pockets of society that still appear to be excluded," she said.

"In today's increasingly digital economy, an individual's access to a bank account linked to card facilities is a bare necessity."

MAS will explore ideas with banks on creating basic bank accounts for individuals. The accounts should allow the customer to perform daily functions, while also holding restrictions to block the risks of the accounts being misused.

She called on the banks to be discerning in opening and maintaining customer relationships, even as the lenders adopt more fine-grained and sophisticated techniques to identify and mitigate money laundering and terrorism financing risks.

Ms Ho said the move to strengthen anti-money laundering standards is not intended "to burden banks with disproportionate monitoring of bank accounts".

"It is important to strike a balance between addressing money laundering and terrorism financing risks and meeting basic banking needs. Banks should not avoid entire classes of customers altogether."

A version of this article appeared in the print edition of The Straits Times on July 19, 2018, with the headline 'Fighting financial crime with data analytics'. Print Edition | Subscribe