On September 18, 2020, the Hong Kong Securities and Futures Commission (SFC) launched a three-month consultation on proposals to amend its anti-money-laundering and counterfinancing of terrorism (AML/CFT) guidelines. The SFC seeks comments primarily on

  • institutional and customer risk assessments
  • risk mitigation for cross-border correspondent relationships, suspicious transactions, and third-party deposits and payments
  • further guidance on PPTA (person purporting to act on behalf of the customer) as well as establishing source of funds and source of wealth

I. Adoption of the RBA Guidance The proposed amendments would adopt the Guidance for a Risk-Based Approach (RBA) for the Securities Sector published by the Financial Action Task Force (FATF) (RBA Guidance) on October 16, 2018.

This approach further underscores a continuation of the risk-based approach. Key changes include

  • the methodology of AML/CFT risk assessment as well as indicators of a higher or lower risk level associated with specific risk factors
  • the risk mitigating policies, procedures, and controls for customer due diligence and ongoing monitoring in various risk situations, including

a. additional measures to mitigate the risks associated with business relationships in the securities sector similar to cross-border correspondent banking relationships b. possible simplified and enhanced measures for customers assessed to be either of lower or higher AML/CFT risk c. red-flag indicators of suspicious transactions and activities

II. Insights From the FATF Mutual Evaluation Report The proposed amendments address some areas where licensed corporations, especially smaller ones, could improve as identified in the latest FATF Mutual Evaluation Report of Hong Kong published on September 4, 2019. These include

  • deepening the understanding of AML/CFT risks posed by cross-border financial flows and certain high-risk customers and implementing risk mitigating responses accordingly
  • strengthening the enhanced AML/CFT measures for foreign politically exposed persons, nonresident customers, and customers that have sanction exposure as well as putting in place more effective suspicious transaction monitoring systems

III. Maintaining a Uniform Standard

As part of its continuous efforts to keep the AML/CFT guidelines more user-friendly, the amended guidelines incorporate relevant guidance currently set out in SFC’s circulars to licensed corporations and associated entities (e.g., in key areas such as institutional risk assessment and third-party deposits and payments) and make references to the AML/CFT guidelines of other financial sectors covered by the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615).

Market participants and other interested parties are invited to submit their comments to the SFC on or before December 18, 2020, via the SFC website (www.sfc.hk), by email ([email protected]), by post, or by fax to 2284 4660.