Hong Kong SFC unveils consultation on AML / CFT guideline for licensed companies – Government, public sector


Hong Kong: Hong Kong SFC unveils consultation on AML / CFT guideline for licensed companies

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On September 15, 2021, the Hong Kong Securities and Futures Commission (SFC) published his conclusions (the
Conclusions of consultations) from last year’s consultation (the Consultation) on its proposed amendments to the guideline on the fight against money laundering and the financing of terrorism (for authorized companies) (the
AML / CFT guideline). The Consultation Conclusions present the SFC’s analysis of the responses to the Consultation, as well as the final amendments to the AML / CFT Guideline. The revised AML / CFT guideline entered into force on September 30, 2021, with the exception of the new requirements for cross-border correspondent relationships, which will enter into force on March 30, 2022 after a six-month transition period.

In this legal update, we provide a high-level overview of SFC’s proposed changes to the AML / CFT Directive and highlight key takeaways from the consultation findings.

Overview of proposed changes

The proposed amendments to the AML / CFT guideline aim to align with the recommendations of the Financial Action Task Force (FATF) standards amplified by its Guidelines for a Risk-Based Approach to the Securities Industry (the “RBA Guidelines for the Securities Industry“) published on October 26, 2018 while providing practical guidance to facilitate the implementation of AML / CFT measures by financial institutions (IF) in a risk sensitive manner.

The main proposed amendments1are:

  • Institutional risk assessment: FIs are required to establish and implement adequate and appropriate AML and CFT policies, procedures and controls, taking into account the products and services offered, types of customers, geographic locations and other factors prescribed in the AML / CFT Directive. In addition, FIs should perform an institutional risk assessment at least once every two years or more frequently upon the occurrence of trigger events that have a significant impact on the activities and risk exposure of the FI. . FIs that operate overseas branches and subsidiaries should also conduct a group-wide AML / CFT risk assessment to facilitate the design and implementation of AML / CFT systems at the corporate level. group scale.
  • Risk indicators for institutional and client risk assessments: FIs are required to assess the AML / CFT risks associated with the client and the business relationship when conducting an institutional or client risk assessment. To determine the overall level of risk to which the FI is exposed, the FI must take a holistic view of a range of factors, including, but not limited to, country risk, customer risk, product / service risk. / transaction as well as the risk related to the delivery / distribution channel. with the customer.
  • Due diligence for cross-border correspondent relationships: While the proposed changes received broad support, a considerable number of comments were made on the requirements for cross-border correspondent relationships. In response, the SFC has provided greater clarity and additional flexibility to meet the demands of cross-border correspondent relationships. For example, SFC has proposed a streamlined approach for cross-border correspondent relationships with affiliates. In accordance with this approach, FIs may apply additional due diligence and risk mitigation measures by assessing whether their group policy and AML / CFT program applicable to an affiliate comply with FATF standards. In addition, given that the requirements for cross-border correspondent relationships are new, the SFC has granted a transition period of six months (from the date of publication in the Official Journal of the revised AML / CFT guideline) for FIs to establish policies and procedures to implement the border correspondent relationship arrangements for their new and pre-existing business relationships.
  • Simplified and strengthened measures within the framework of a risk-based approach: The SFC has limited the type and extent of customer due diligence (CDD) measures used to verify the identity of low-risk customers. For these clients, the SFC suggested reducing the frequency of review of existing CDD records and the degree of ongoing monitoring of transactions based on a reasonable monetary threshold. In contrast, the SFC has asked FIs to adopt enhanced due diligence measures for high-risk clients and politically exposed persons.
  • Warning indicators for suspicious transactions and activities: As part of the process of identifying suspicious activity, FIs are expected to take additional action and obtain additional information (for example, by asking appropriate questions of clients, assessing the justifications provided by clients and verifying their records) to assess whether the transaction or activity is in accordance with the FI’s knowledge of the customer. In this regard, in the revised AML / CFT guideline, the SFC has provided a list of non-exhaustive illustrative indicators of suspicious transactions and activities in order to enable FIs to determine whether there are grounds for suspicion concerning the client. concerning.
  • Third party deposits and payments: FIs are required to take all reasonable measures to mitigate the AML and CFT risks associated with transactions involving deposits and third party payments, having regard to the list of illustrative indicators of suspicious transactions and activities referenced below. -above. In addition, FIs should only accept deposits or payments from third parties in exceptional circumstances and when they are reasonably consistent with the client’s profile and normal business practice. Before an FI accepts a deposit or third-party payment agreement, it must ensure that adequate policies and procedures and a due diligence process are in place to mitigate the inherently high risk and address any concerns. applicable legal and regulatory requirements.
    In the revised LAB / CFT guideline, the SFC also responded to industry concerns about the practical difficulties in completing due diligence on third party deposits before settling transactions with deposited funds. According to the SFC, FIs are allowed to delay third party filing due diligence only in exceptional situations where there is no suspicion of AML and CFT risks and where risk management policies and procedures appropriate are in place.
  • Person claiming to be acting on behalf of the client: To determine whether a person purports to act on behalf of the client (PPTA), FIs should assess the AML / CFT risks associated with that person’s roles and the activities that the person is authorized to conduct, as well as the AML / CFT risks. FT risks related to the business relationship. In addition, FIs should implement clear policies to determine who is considered a PPTA and identify a PPTA in accordance with the identification requirements set out in the policies.

To help the industry better understand the application of the AML and CFT requirements set out in the consultation conclusions, the SFC will publish an updated set of FAQs following the implementation of the AML / CFT Directive. This should facilitate the implementation of risk-based AML and CFT measures by industry actors more effectively.

Key points to remember

The management of AML and CFT risks remains a priority area for financial regulators. The changes made by the SFC to the AML / CFT guidelines are part of this trend. Some of the main proposed amendments align, for example, with common themes emerging from recent UK Financial Conduct Authority assessments of banks’ financial crime systems and controls. For a more detailed discussion, please see our legal update.

The Hong Kong Monetary Authority also recently released two notes regarding (a) Supporting the Use of New Technologies for AML / CFT: Suggested Actions for Hong Kong Banking Sector (hkma.gov.hk) and (b) Main Observations and Good Practices in the Use of External Information and Data in Anti-Money Laundering and Terrorist Financing (AML / CFT) Systems (hkma.gov.hk). In response to increased regulatory expectations globally, FIs are reminded to continue to improve their overall AML and CFT frameworks in accordance with applicable regulatory requirements and to remain proactive.


1. These are the main areas of amendment identified by the SFC in the consultation conclusions.

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This article by Mayer Brown provides information and commentary on legal issues and developments of interest. The foregoing does not constitute a complete treatment of the matter at hand and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action on the matters discussed in this document.

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