Reminder On The Requirements To Implement Control Measures In Accepting Third Party Deposits For Fund Management Industry

18 July 2024

The Securities Commission (SC) has observed certain deficiencies in the controls over the acceptance of third-party deposits among some intermediaries within the capital market. These inadequacies have led to delays or failures in detecting frauds and misappropriations, resulting in financial losses. In light of these observations, the SC wishes to emphasize the importance of implementing robust controls to mitigate the risks associated with third-party deposits, as outlined in the SC’s Guidelines on Prevention of Money Laundering, Countering Financing of Terrorism, Countering Proliferation Financing, and Targeted Financial Sanctions for Reporting Institutions in the Capital Market.

To ensure compliance and enhance the integrity of the capital market, the SC expects all intermediaries to undertake the following measures:

Conduct a comprehensive risk assessment to determine the circumstances under which third-party deposits can be accepted.
Establish and enforce clear, comprehensive, and effective policies and procedures for monitoring third-party deposits.
Perform due diligence on third-party deposits to ascertain:
a. The identity of the third-party payor, including identification number, residential address, and contact number.
b. The relationship between the customer and the third-party payor.
c. The reason for making deposits into the customer’s account.
Implement effective monitoring systems and controls to identify and accept third-party deposits into customer accounts, including obtaining relevant supporting documents from customers to verify the payor of the transactions. For example:

Require a copy or image of the customer’s cheque(s) to be submitted with the investment application/transaction form to verify the issuer’s identity.
Require a copy of the customer’s original application form for remittance to be submitted with the investment application/transaction form to verify the issuer of the banker’s cheque.
Require a copy of the customer’s transfer or bank-in slips, containing at minimum the depositor’s name, to be submitted with the investment application/transaction form to verify the transferor’s identity.

Prohibit the acceptance of cash or cash deposits from customers into the intermediary’s bank account(s).
Prohibit Unit Trust Consultants (UTCs) from:
a. Accepting deposits such as cash and online/bank transfers from customers into their personal bank account(s).
b. Making payments on behalf of customers from their personal bank account(s).

Furthermore, intermediaries are encouraged to regularly remind their customers of the following:

Not to pay using cash or deposit cash directly into the intermediary’s bank account(s).
Not to pay using cash or issue cheques to, or bank in monies directly into, the personal bank accounts of UTCs or anyone claiming to represent the intermediary for investment transactions.
To issue cheque(s) made payable to the intermediary and to provide details such as name, identification/company number, and account number on the back of the cheque.
To ensure they receive a copy of the investment forms, confirmation of transactions, and statements of accounts issued by the intermediary directly.
To verify with the intermediary directly if they have any doubt about the authenticity of documents received from the intermediary or anyone claiming to represent the intermediary.

The SC expects all intermediaries to take these directives seriously and to implement the necessary controls without delay. Compliance with these measures is critical to maintaining the integrity of the capital market and protecting investors from financial harm.

We trust that you will give this matter the attention it deserves. For further clarification or queries, please contact the respective SC officer in the Intermediary Supervision Department.