Singapore’s financial institutions are highly regulated and have a responsibility to detect, deter and prevent money-laundering, terrorist funding, fraud and other illegal activities. As a result, Singapore fund managers, financial consultants, insurance agencies, trust managers and payment service providers often require customer background checks.
The importance of KYC
The most typical customer background check is known as KYC. It is the mandatory process of identifying and verifying the client’s identity when opening an account and periodically over time.
KYC means knowing your customers well. That is, banks, trusts, insurance and other financial institutions in the service of customers, the actual holders of accounts and actual income holders to check whether customers meet the anti-money laundering law, anti-terrorism financing and other regulatory requirements.
KYC regulation has become more stringent globally in recent years, with most countries around the world making it clear that financial regulators need to demand and authorize it, and Singapore has become the world’s most stringent KYC regulator outside the United States and the United Kingdom.
KYC is also required in fund-raising and mergers and acquisitions projects. KYC inspections protect the business interests of all participating stakeholders, as well as companies, investment firms, and investors. This reduces the financial risk of business arrangements with specific customers, especially where large amounts of money are involved, if the business or issuer complies with the KYC policy.
Why do customer due diligence?
ACRA (Accounting and corporate regulatory authority) is Singapore’s national regulatory agency for business entities and public accounting, all new business registrations need to be carried out through ACRA.
The new ACRA regulations are designed to protect Singapore’s corporate service providers from unknowingly facilitating the illegal activities of some customers.
ACRA also published a set of guidelines for enterprise service providers. These guidelines aim to help community service projects reduce risks by establishing internal policies for monitoring and mitigating these risks.
Any company that provides corporate services to other companies must ensure that the following guidelines are followed, and internal policies should be formulated in areas such as customer risk assessment and due diligence. If you hire a corporate service provider (CSP) to register and manage your Singapore company, you must ensure that the CSP complies with these regulations and guidelines.
If you hire a non-compliant company, it is likely to be disqualified by ACRA and face penalties; in this case, all customers of this disqualified company will face severe business interruption, possibly because of their CSP’s contact was affected in ACRA.
Anyone who wishes to register a new business in Singapore must comply with the strengthened management framework of the Institute of Certified Public Accountants of Singapore. In addition, you must follow the KYC guidelines for screening procedures.
Why implement the new regulations?
ACRA is aligned with the recommendations issued by the global Financial Action Task Force (FATF), is aimed at safeguarding against money laundering and terrorism financing. It is also aimed at protecting corporate services providers from unknowingly engaging in illegal activities. Corporate services providers are now requiring to conduct due diligence checks and have robust systems and process in place to prevent abuse of corporate vehicle for criminal or other illegitimate purpose.
In 2015, Singapore further strengthened these safeguards by incorporating its corporate service providers ang to further boost Singapore’s reputation as the choice investment destination.
A more complete KYC mechanism usually consists of the following parts
- Customer Identification Program (CIP): Collection, verification and record-keeping of customer identification information, as well as the verification of clients against lists of known terrorists
- Customer Due Diligence (CDD): Identify customers with whom screening risks are too high to do business.
- Enhanced Due Diligence (EDD): Deeper due diligence on high-risk customers to gather more information and gain insight into customer activities, reducing the risk of financial crimes such as money laundering.
- Simplified Due Diligence (SDD): Simplified due diligence for some low-risk customers, such as small savers.
How will the company be screened?
To meet KYC requirements, you need to provide your enterprise service provider with the following information:
- Collect information
- Full Name, Identification Proof (such as Identity Card or Passport), Residential Address, Date of Birth and Nationality of each of the Directors, Shareholders, and the ultimate Beneficial Owners of the company.
- A resolution by the company’s certificate of incorporation
- Copy of the company’s Memorandum and Articles Association (M&AA)
- Copy of the company’s business profile
- Copy of the company’s certificate of incorporation.
Depending on the customer’s situation, additional documentation may also be required to ensure due diligence is complete and remedial work is avoided.
- Verify the information
It is usually a procedure to check the customer’s links to anti-money laundering lists and other mandatory regulatory lists. In order to identify customers with a higher risk of money laundering or terrorist financing, we will verify that your:
- Source of income or revenue
- Nature and purpose of your accounts, or linked accounts
- Business activities
- Country of origin and residence
- And that of any persons acting on your behalf
Specifically, your corporate services provider will assess if:
- Contacting your existing clients is easy and hassle-free
- You or your clients are Politically Exposed Persons (PEPs), such as Heads of state, senior politicians or government officials, political party officials, senior executives of state-owned corporations, judicial or military officials, or family members or close associates of those
- You are too secretive and appear to be avoiding face to face meetings
- You have issued unusual instructions regarding cash or loans
- You are from a jurisdiction with inadequate anti-money laundering or counter terrorism financing measures
- Money is going in and out of your company’s accounts
- You are accepting losses though unusual transactions
- Your company structure is overly complex or unusual
- Regular reviews
Based on all input and recorded information, we can assess the customer’s level of risk based on the customer’s answers, authentication and name checks, and decide to accept or reject the customer. We also regularly review customer data and update outdated information or at base-specific events such as address changes, nationality or passport changes.
Setting up a company in Singapore is convenient, and the tax rate is low, with a corporate income tax rate of 17% and no capital gains tax. The government also has a lot of financial subsidies for its fintech industry. If you need to register a Singapore company, please contact us and our professional team will be happy to help you!