SINGAPORE: The Monetary Authority of Singapore (MAS) announced on Tuesday (May 24) it has ordered the closure of Switzerland’s BSI Bank in Singapore.
A notice of intention has been served to the bank to withdraw its status as a merchant bank in Singapore over “serious breaches of anti-money laundering requirements, poor management oversight of the bank’s operations, and gross misconduct by some of the bank’s staff”, MAS said.
This is the first time in over 30 years that a merchant bank in Singapore has been ordered to shut down. In 1984, Jardine Fleming (Singapore) was ordered to close over serious lapses in its advisory work.
BSI Bank has also been fined S$13.3 million for 41 breaches of anti-money laundering regulations. The breaches include a failure to perform enhanced customer due diligence on high-risk accounts, and to monitor for suspicious customer transactions on an ongoing basis.
The bank has been operating in Singapore since November 2005, and offers private banking services. It is a wholly-owned subsidiary of Switzerland-based BSI SA.
Swiss authorities have also opened criminal proceedings against the parent company. The Office of the Attorney General of Switzerland said on Tuesday that the decision to initiate proceedings was based on information revealed by the criminal proceedings in the 1MDB case and on issues raised by the Swiss Financial Market Supervisory Authority.
“Clients and customers of BSI Bank are assured that the bank is solvent and has assets in excess of its liabilities and commitments. It also has the full support of its parent bank, BSI SA, in Switzerland. MAS is working closely with the Swiss Financial Market Supervisory Authority, the home regulator of BSI SA, to oversee an orderly closure of BSI Bank in Singapore,” MAS said.
The entire BSI group is in the process of being acquired by Swiss bank EFG International, MAS noted. In the interest of customers, MAS said it will allow the transfer of the Singapore subsidiary’s assets and liabilities to the Singapore branch of EFG Bank AG or to the parent entity, BSI SA.
The Swiss Financial Market Supervisory Authority had approved the takeover of BSI by EFG International with the condition that BSI will be integrated and dissolved within 12 months.
SIX STAFF REFERRED TO PUBLIC PROSECUTOR
Six members of the bank’s senior management and staff in Singapore have been referred to the Public Prosecutor to evaluate whether they have committed criminal offences, MAS said.
The six are former CEO Hans Peter Brunner, former Deputy CEO Raj Sriram, head of wealth management services Kevin Michael Swampillai, who is currently suspended by the bank, former senior private bankers Yak Yew Chee and Seah Yew Foong, and former wealth planner Yeo Jiawei, who is currently in remand and has been charged for various offences.
“MAS found considerable evidence of gross dereliction of duty and failure to discharge oversight responsibilities on the part of BSI Bank’s senior management. Their ineffective governance led to a poor risk culture, which prioritised questionable customer demands ahead of compliance with anti-money laundering regulations and the bank’s own internal controls,” MAS said.
Mr Swampillai is currently suspended by the bank, it added.
Several staff also committed wilful acts of misconduct, such as making material misrepresentations to auditors, abetting improper valuations of assets and taking instructions from people other than customers’ authorised representatives on matters relating to customers’ accounts, MAS said.
“The severe lapses and failings in BSI Bank, which led to MAS’ decision to withdraw the bank’s status as a merchant bank, were the result of the actions or omissions of these individuals,” it added.
The Attorney-General’s Chambers said in a statement on Tuesday that further charges against Yeo will be tendered “in due course”.
“Insofar as the five other individuals named by the MAS are concerned, the Attorney-General’s Chambers will be working with the Commercial Affairs Department to review the facts before assessing the next appropriate course of action,” it said.
THREE INSPECTIONS, MULTIPLE BREACHES
In 2011, MAS inspected BSI Bank and found policy and process lapses at the front office and weak enforcement by control functions. These lapses were rectified, MAS said.
In 2014, it again inspected the bank and uncovered “serious shortcomings” in its due diligence checks on assets underlying the investment funds structured for the bank’s customers. The bank’s management was ordered to increase scrutiny of its risk management processes and internal controls.
A more intrusive third inspection by MAS last year revealed “multiple breaches of anti-money laundering regulations and a pervasive pattern of non-compliance”.
The 2015 inspection revealed widespread control failures which led to numerous serious breaches of various anti-money laundering regulations; poor and ineffective oversight by the senior management; unacceptable risk culture, with blatant disregard for compliance and control requirements as well as MAS’ regulations; and numerous acts of gross misconduct by certain staff, MAS said.
“Specific regulatory lapses include the processing of multiple unusual transactions which were essentially pass-through trades often without economic substance. Approvals of such transactions were based purely on faith of client representations despite deficient documentation and concerns raised by the bank’s compliance officers.”
WORST CASE OF CONTROL LAPSES, MISCONDUCT IN SINGAPORE: MENON
"BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector,” MAS Managing Director Ravi Menon said in a statement.
“It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously. Controls need to be robust, surveillance vigilant, and the management culture must emphasise professional integrity and risk consciousness.”taken against these institutions if they are found to have breached regulations or fallen short
MAS said it is conducting supervisory reviews of several other financial institutions and bank accounts through which suspicious and unusual transactions have taken place. Actions will be of expectations, it said.
“MAS is absolutely committed to safeguarding the integrity and reputation of Singapore’s financial centre. On this, there can be no compromise,” Mr Menon said.
CLOSURE OF BSI SINGAPORE WILL NOT AFFECT EFG SINGAPORE'S STATUS: CEO
When contacted by Channel NewsAsia, Chief Executive Officer of EFG Bank AG Singapore Kong Eng Huat said the closure of BSI Bank in Singapore will not affect EFG Singapore. EFG operates in Singapore under a wholesale banking licence.
“There is no impact on our licensing or status,” said Mr Kong on Tuesday.
Channel NewsAsia understands that while the deal may not affect EFG’s operations in Singapore, the closure of BSI in Singapore is likely to accelerate the integration of the two Swiss-headquartered entities.
MAS said in a statement on Tuesday that clients of BSI Singapore will be allowed to transfer their assets to the Singapore branch of EFG Bank, or to the parent entity in Switzerland, BSI SA.
“Any material impacts, like job losses, etc, may be contained because there is an existing deal to merge EFG with BSI. Such a deal can simply be (re)structured as an asset acquisition,” said Bernard Lee, founder and CEO of fintech firm HedgeSPA.