Best Practices for Source of Wealth Due Diligence

Introduction 

In an era of increasing financial complexity and cross-border wealth flows, the need for robust Source of Wealth (SoW) due diligence has never been more critical. In 2024, The Monetary Authority of Singapore (MAS) published additional guidance on how FIs may establish the SoW of their customers in a risk-proportionate and reasonable manner. Subsequent to that, the MAS, through the AML/CFT Industry Partnership (ACIP) Legal Persons and Arrangements Working Group has produced a best practices paper to elaborate in further detail, the Industry Perspectives on Best Practices for Source of Wealth Due Diligence. 

This post provides a practical overview of: 

• The intent and scope of the ACIP paper 

• Key risks and best practices by SoW category 

• How we can support your institution in navigating these changes 

Overview 

The intent and scope of the ACIP paper 

The purpose of the ACIP paper is to share insights with FIs on the importance of a robust SoW, and the need for a risk-based, proportionate approach to SoW due diligence. As such, the following three main principles should be considered as cascading logic: 

1. Materiality 

   • FIs should identify the elements which contribute materially to the wealth or assessed as potential higher risks (Material SoW) 

   • FIs should consider the relative proportion of wealth and the initial capital as factors to determine the materiality to wealth. 

2. Relevance 

   • FIs should obtain fit-for-purpose corroborative evidence and justify the suitability of the corroboration documents (e.g., recency, independence, reliability) 

   • Independent and reliable documentation in corroboration should be prioritized which lead to triangulation against customer representations and clients’ documents 

3. Prudence 

   • FIs can consider the use of benchmarks to justify the plausibility of information provided by customers and ensure such benchmarks are reasonable, relevant and suitable for the respective risk profile and circumstances 

   
   

   FIs should exercise reasonable judgement in relying on information received from customers.

Key risks and best practices by SoW category 

There are several types of SoW which pose a good challenge in terms of corroboration due to the nature of wealth. These includes but not limited to inheritances and gifts, business ownership, investment gains, sales of goods which are hard to be valued, and employment income. Nonetheless, below are the best practices for each scenario which are shown in the table below. 

SoW Category	Identified Risks	Best Practices
Inheritances & Gifts	Lack of documentation, unverifiable relationships, long-dated events.	Use wills, deeds, tax records, and triangulate with RM knowledge.
Business Ownership	Inflated valuations, nominee structures, unverifiable financials.	Review audited accounts, perform site visits, benchmark against industry norms.
Investment Gains	Fabricated returns, unverifiable trades, digital asset opacity.	Validate with portfolio statements, assess investment strategy, use on-chain analytics for crypto.
Sale of Hard-to-Value Goods	Subjective valuations, lack of provenance, buyer opacity.	Verify sale documents, assess commercial rationale, consult external experts.
Employment Income	Falsified pay slips, inflated roles, unverifiable employers.	Benchmark salaries, verify employment history, assess plausibility based on age and experience.

Summary 

In brief, the paper outlines the ‘waterfall’ logic in SoW due diligence, key SoW scenarios and the respective best practices. Not only this will help the FIs to integrate the SoW due diligence into AML/CFT policies and implement best industry practices, but it will also establish a strong compliance culture within the finance industry especially AML-related fields. 

How Kai Global Consulting Can Help 

As a compliance solutions advisor, we offer tailored support to help your institution meet these evolving expectations from the authority, from understanding of your organization and application of the 3 guiding principles, to identifying the risk and implementing best practises solution, feel free to reach out to us for non-obligatory discussion.  

Schedule a 30-minute consultation with us.

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For more details about this article, please refer to

https://www.mas.gov.sg/regulation/external-publications/industry-perspectives-on-best-practices-for-source-of-wealth-due-diligence