Strengthening Financial Integrity: Best Practices for Source of Wealth Due Diligence
Singapore’s financial sector has long stood as a beacon of trust and transparency, attracting global investors and institutions. In its continued fight against financial crime, Source of Wealth (SoW) due diligence is taking center stage.
Recent industry insights compiled by leading banks under the AML/CFT Industry Partnership (ACIP) provide best practices and a tiered approach for Financial Institutions (FIs) to apply SoW due diligence across private, retail, and corporate banking segments.
Here’s what FIs need to know and do.
Why Source of Wealth Matters
Understanding the origin of a customer’s total wealth—not just individual transactions—helps FIs identify potential red flags, mitigate money laundering (ML) and terrorist financing (TF) risks, and build a credible customer risk profile.
Singapore’s Monetary Authority (MAS) underscores the importance of risk-based, reasonable, and rigorous due diligence, especially for customers assessed to pose higher ML/TF risks such as Politically Exposed Persons (PEPs).
Three Guiding Principles for SoW Due Diligence
ACIP’s paper anchors its best practices on three principles:
- Materiality: Focus on the sources of wealth that significantly contribute to a customer’s total assets or pose higher risks.
- Relevance: Seek fit-for-purpose, independent documentation that verifies the customer’s SoW.
- Prudence: Use reliable information and avoid blind reliance on customer declarations or unaudited data.
A Tiered, Risk-Based Approach Across Banking Segments
1. Private Banking & Wealth Management
Given their complex structures and larger transaction sizes, all customers must undergo full SoW due diligence—including corroboration through background checks, investment histories, and public information.
2. Retail Banking
Retail customers typically pose lower risk, but triggers like foreign PEP status, adverse news, high net worth, or transactions through high-risk jurisdictions call for enhanced scrutiny.
Two Tiers:
- Tier 1: Baseline SoW understanding (e.g. occupation, net worth)
- Tier 2: Full corroboration for customers showing wealth risks
3. Corporate Banking
Entity-level assessments are key. FIs should collect financial and ownership data and verify the legitimacy of funding sources.
Examples of when Full SoW Due Diligence is necessary:
- Politically Exposed Companies (PECs)
- Private Investment Companies with significant UBO contributions
- Entities with obscure ownership structures
Risk Mitigation: Beyond Documents
When full documentation isn’t feasible (e.g., long-dated inheritance), FIs are encouraged to:
- Use public records, benchmarks, and industry reports
- Conduct plausibility assessments
- Leverage relationship managers’ knowledge
- Escalate uncertain cases to senior management
Corroborating Common SoW Types
Each wealth type presents unique challenges. ACIP outlines best practices for corroborating:
- Inheritances & Gifts: Verify relationships and assess the asset contributor’s SoW.
- Business Ownership: Compare financials with industry benchmarks, verify ownership.
- Investment Gains: Scrutinize consistency and performance over time.
- Sale of Hard-to-Value Goods: Conduct plausibility checks and validate counterparties.
- Employment Income: Benchmark salaries, verify tenure and seniority, and cross-check discrepancies.
Emphasizing Ongoing Monitoring
SoW due diligence doesn’t end at onboarding. Trigger events—such as fresh large deposits, new PEP status, or discrepancies in reported net worth—must prompt a reassessment.
Technological tools like AI and data analytics can support FIs in flagging these events and ensuring updated customer profiles across business units.
The Role of Senior Management
Senior management must define the institution’s risk appetite, ensure governance structures are in place, and approve higher-risk relationships when documentation falls short but risk mitigants are in place.
Recommended controls include:
- Transaction restrictions
- Product limitations
- AUM thresholds
- Escalated reviews for high-risk clients
Final Thoughts
Establishing the legitimacy of wealth is not just a regulatory requirement—it’s a critical defense against financial crime.
As customer profiles evolve and financial instruments grow more complex, a proactive, risk-based, and cross-segment approach to SoW due diligence is essential.
By following the principles and practices outlined in this ACIP paper, FIs can continue to serve clients with confidence—while safeguarding Singapore’s reputation as a trusted financial hub.
About Diligencify
Diligencify assists financial institutions by conducting comprehensive research on High-Net-Worth Individuals (HNWIs) and Ultra-High-Net-Worth Individuals (UHNWIs). We provide 360-degree open-source intelligence, covering—though not limited to—source of wealth, net worth, liquid assets, asset holdings, corporate affiliations, nonprofit associations, adverse media, politically exposed person (PEP) connections, sanctions screening, education, interests, and personal and professional networks.
