SFC issues anti-terrorism and sanctions update
The Securities and Futures Commission (SFC) has issued a circular regarding the United Nations Sanctions (Somalia) Regulation 2019 (Amendment) Regulation 2021, which implement the decisions on exemptions for arms embargo and financial sanctions as set out in the United Nations Security Council Resolution 2551. The SFC and Insurance Authority have updated their webpages accordingly. [11 Feb 2021]
SFC indicates crackdown on online “ramp and dump” scams as one of its enforcement priorities
The SFC has indicated that one of its top enforcement priorities in 2021 is to crack down on “ramp and dump” scams and other types of market manipulation conducted through social media platforms. It is working closely with the Hong Kong Police to tackle syndicate-based “ramp and dump” scams.
The SFC warned the public about online investment scams through a short video produced jointly with the Anti-Deception Coordination Centre of the Hong Kong Police, which is available on the SFC’s Facebook page.
The video features a “ramp and dump” scheme, which is a form of stock market manipulation where fraudsters “ramp” up the price of a stock and use social media to entice investors to buy at an artificially high price. The fraudsters then sell or “dump” the stock, and in most cases, the investors are not aware of the true identities of the fraudsters who lured them into the trap. [10 Feb 2021]
HKMA publishes updated HKAB FAQs on AML/CFT
The Hong Kong Monetary Authority (HKMA) has published a revised version of the Hong Kong Association of Banks’ (HKAB) frequently asked questions (FAQs) in relation to anti-money laundering and counter-financing of terrorism (AML/CFT). The FAQs are developed by the HKAB with input from the HKMA, and are designed to be read in conjunction with the HKMA’s existing AML/CFT guidelines for authorised institutions (AIs). The FAQs were last updated on 30 September 2020.
The updated document adds a new question regarding whether an AI can rely on the British National (Overseas) (BN(O)) passport for identity verification. It is noted that according to an announcement made by the HKSAR government on 29 January 2021, the BN(O) passport would no longer be recognised as a valid travel document or any form of proof of identity in Hong Kong from 31 January 2021.
The updated FAQs are also available on the HKMA website. [2 Feb 2021]
HKMA report: “AML/CFT Regtech: Case Studies and Insights”
The HKMA has published a report titled “AML/CFT Regtech: Case Studies and Insights”, highlighting opportunities offered by regulatory technology (RegTech) to improve the efficacy and efficiency of AML/CFT efforts by financial institutions through real-life examples. Circulars have been issued to AIs and stored value facility licensees regarding the report.
The report forms part of the HKMA’s ongoing initiative to promote responsible innovation and RegTech adoption in the banking industry for AML/CFT purposes. Following the first AML/CFT RegTech Forum in November 2019, the HKMA collaborated with a consulting firm to follow up on the progress made by three breakout groups of banks. The report details case studies involving six banks which have implemented technologies, including network analytics and robotic process automation, and is designed to provide practical guidance to banks at various stages of AML/CFT RegTech adoption. [21 Jan 2021]
Hong Kong Police arrests bankers in HK$6.3 billion money laundering case
Hong Kong Police has arrested seven current and former Hong Kong bankers for their alleged involvement in a money laundering syndicate which has allegedly handled HK$6.3 billion (US$813 million) in criminal proceeds. The defendants allegedly assisted the syndicate in opening at least 14 accounts using forged documents and a fake identity card, and – according to the Police – are the first bankers to be arrested in Hong Kong for money laundering. [20 Jan 2021]
Court sentences company secretary to imprisonment for insider dealing
The SFC has announced that the Eastern Magistrates’ Court has sentenced a company secretary to 45 days of imprisonment for insider dealing in the company’s shares. The court also ordered the individual to pay a fine of HK$45,000 and the SFC’s investigation costs of HK$37,029.51. The individual was convicted in December 2020.
The SFC emphasises that insider dealing is a serious criminal offence and that it will continue to strive to bring criminal proceedings to deter such market misconduct. [11 Jan 2021]
Court upholds jail sentence against former GEM-listed group finance manager for insider dealing
The SFC has announced that the Court of First Instance has upheld the jail sentence against a former group finance manager for insider dealing but has allowed the custodial term of his two convictions to be served concurrently. The individual was sentenced by the Eastern Magistrates’ Court in February 2019.
The Court of First Instance rejected all grounds of appeal advanced by the individual. However, considering that it had already been almost nine years since he committed the offence, the court exercised its discretion and ordered the custodial term to be served concurrently, effectively shortening his imprisonment from four months to three months.
The Court of First Instance also maintained the original fine of HK$120,000 and the SFC’s investigation costs of HK$33,365. [11 Jan 2021]
ICAC makes available Corruption Prevention Guide for Insurance Companies and online training
The Corruption Prevention Department of the Independent Commission Against Corruption (ICAC) has produced (in collaboration with the insurance industry) a “Corruption Prevention Guide for Insurance Companies” to assist insurance companies in establishing and strengthening their corruption prevention capabilities. The Corruption Prevention Advisory Service of the ICAC has recently uploaded the English version of the guide onto its portal.
The guide includes practical guidance on (among other topics):
- anti-bribery and related legislation, as well as regulatory and professional requirements or guidelines;
- standards of behaviour, including a clean business culture and essential probity requirements in a code of conduct;
- elements of good corporate governance, such as board oversight, establishment of board committees and obligations of senior management;
- elements of effective internal controls, such as clear policies, work procedures and guidelines, record keeping and information security, and supervisory monitoring and accountability; and
- corruption risks and corresponding safeguards in core operations including management of insurance intermediaries, sales process, and underwriting and claims verification procedures.
The guide also provides a sample code of conduct for insurance companies, examples of conflict of interest situations and mitigation measures, as well as a summary of ICAC services and other anti-corruption assistance available to the insurance industry.
In addition, the Hong Kong Business Ethics Development Centre of the ICAC has developed (in collaboration with the Hong Kong Federation of Insurers) an online training module on anti-corruption laws and professional ethics for insurance intermediaries. [29 Dec 2020, 7 Jan 2021]
Covid-19: HKMA reminds industry of pandemic-related ML/TF risks
The HKMA has published a circular to draw the attention of AIs and stored value facility licensees (SVF licensees) to the Covid-19 related money laundering and terrorist financing (ML/TF) risks highlighted in an updated report published by the Financial Action Task Force (FATF) in December 2020.
The December 2020 report highlights the developments since the previous May 2020 report, details how criminal activity exploits the global financial system, and provides various case studies (some from Hong Kong) to illustrate the evolving risks. The report also reinforces the continuing importance of a response which is risk-based and does not disrupt essential and legitimate services. The HKMA’s regulatory expectations in this regard were set out in its circulars of 7 April 2020 and 30 July 2020.
The HKMA has been monitoring the Covid-19 related impact on ML/TF risks and working closely with AIs and SVF licensees to tackle the risks. The Fraud and Money Laundering Intelligence Taskforce and the Hong Kong Association of Banks (including its Fraud Risk Management Taskforce) have also taken steps to assist the industry in this regard.
The HKMA advises AIs and SVF licensees to study the FATF’s report in conjunction with the ML/TF risk information provided through the above-mentioned forums, and consider the relevant implications for their ML/TF risk management. [31 Dec 2020]
SFC concludes consultation on CDD requirements for OFCs
The SFC has announced the publication of consultation conclusions on proposed customer due diligence (CDD) requirements for open-ended fund companies (OFCs), following the SFC's September consultation on CDD requirements for OFCs regarding the revised proposal AML/CFT measures. The revised proposal envisaged that OFCs would not be required to keep a significant controllers register, but instead to appoint a responsible person to carry out AML/CFT functions (similar to the requirements imposed on limited partnership funds).
The revised proposal will be implemented, and upon completion of the legislative amendment process, the new requirements will come into effect after a six-month transition period, to allow the industry reasonable time to prepare.
In response to requests received during the consultation, the SFC has updated its FAQs to clarify technical issues relating to OFC custodians (Q6A and Q23 to 25). It has also updated its Information Checklist for Application for Registration of a Private Open-ended Fund Company or Establishment of a Privately offered Sub-fund of an Open-ended Fund Company and Information Checklist for Application for Approval of Appointment of Director, Custodian or Investment Manager of a Private Open-ended Fund Company. [23 Dec 2020]
SFC issues circular on anti-bribery obligations
The SFC has issued a circular reminding intermediaries of their obligations to put in place robust internal control systems to prevent contravention of the Prevention of Bribery Ordinance (POBO) when conducting regulated activities.
- Under the SFC’s main code of conduct, intermediaries are obliged to comply with (and implement appropriate measures to ensure compliance with) the requirements of any regulatory authority which apply to the intermediary. Specifically, intermediaries should be familiar with the POBO and follow related guidance issued by the ICAC, particularly, section 8 of the POBO on bribery of public servants by persons having dealings with public bodies and section 9 on corrupt transactions with agents. Relevant provisions of the POBO have been published in the appendix to the circular.
- Part V of the guidelines on internal control requires intermediaries to establish and maintain policies and procedures to ensure compliance with all applicable legal and regulatory requirements as well as with their own internal policies and procedures. Intermediaries should therefore lay down anti-bribery policies and codes of conduct for their directors, staff members and agents, and adopt the statutory definition of “advantages” under section 2(1) of the POBO.
- Intermediaries should draw reference from the sample code of conduct issued by the ICAC for the private sector.
- Intermediaries should also provide appropriate training to their directors, staff members and agents to ensure compliance with the POBO, regulatory requirements and internal anti-bribery policies and procedures. [18 Dec 2020]
Customs and Excise Department uncovers money laundering syndicate
Hong Kong’s Customs and Excise Department has uncovered a suspected money laundering syndicate – involving a money service operator (MSO) and an offshore company – which made suspicious remittances of $880 million. The MSO's bank balance of about $16 million has been frozen and its licence has been suspended. Of the four individuals arrested, three are employees of the MSO and one is the Director of the offshore company. [15 Dec 2020]
SFC makes available materials from AML/CFT webinars
The SFC has made available the following materials from the AML/CFT webinars which took place earlier this month:
- Update on major AML/CFT regulatory developments (delivered by the SFC), covering topics including:
- international and Hong Kong AML/CFT regulatory developments (such as international focus on virtual assets, use of digital identity for customer due diligence and proposed legislative amendments);
- counter financing of proliferation of weapons of mass destruction regime;
- the SFC’s AML/CFT initiatives (such as money laundering and terrorist financing risk assessment of the Hong Kong securities sector, and consultation on proposed amendments to AML/CFT guidelines); and
- the SFC’s findings from inspections of AML/CFT controls and compliance practices.
- Suspicious transactions reporting overview and statistics (delivered by the Joint Financial Intelligence Unit (JFIU)), covering topics including:
- the JFIU and its role;
- key money laundering and terrorist financing-related legislation;
- suspicious transactions reporting requirements, reporting procedures and statistics; and
- case studies. [8 Dec 2020]
Insurance Authority makes available materials from AML/CFT sharing session
The Insurance Authority has made available materials from an online sharing session on 4 December 2020 regarding key observations of insurers’ AML/CFT controls on virtual customer onboarding. The session was delivered by the Insurance Authority’s Market Conduct Division and covered the following topics (among others):
- onboarding in a virtual world;
- key AML/CFT regulatory requirements (Anti-Money Laundering and Counter-Terrorist Financing Ordinance, guideline GL3 and circular of 5 August 2020);
- key AML/CFT considerations – expectations, good practices and alerts (AML/CFT risk assessment, additional measures for non-face-to-face channels, identity information, insurance premium collection, transaction monitoring, use of technology, straight-through process, and customer due diligence by insurance intermediaries);
- digital identity. [7 Dec 2020]
Hong Kong Government to propose new digital assets regulation, officials say
According to officials, the Hong Kong Government is intending to regulate the trading in digital assets by banning retail investors from trading in cryptocurrencies and forcing exchange operators to obtain licences. This will align with the Financial Action Task Force’s (FATF) requirement for members to introduce compulsory licensing or registration for virtual-asset trading platforms. [3 Nov 2020]
People’s Bank of China strengthens AML enforcement
In 2020, the People’s Bank of China fined over 417 entities around 628 million yuan (US$96.98 million) in relation to anti-money laundering (AML) failures, representing a three-fold increase on the previous year. These failures, which mainly involved banks and payment institutions, related to, among other issues, the disclosure of customer information and client identification. The central bank noted that this action reflects its shift away from a “rule-based” approach towards a more “risk-based” approach. [11 Jan 2021]
Chengde court sentences banker to life in bribery case
A court in Chengde, China, has sentenced a former Party Secretary and Chair of the China Development Bank to life in prison for earning up to 85.5 million yuan ($US13.2 million) in bribes over a period of ten years. The sentence, televised at the conclusion of the trial, reflects the Chinese Government’s on-going crack-down on corruption. [8 Jan 2021]
Tianjin court sentences former finance executive to death for bribery
A court in Tianjin, China, has sentenced the former Chair of a state-owned asset management firm to death after finding him guilty of bribery. The individual was found guilty of taking or seeking bribes totalling nearly 1.8 billion yuan (US$277 million). Chinese state media reported in August 2020 that he pleaded guilty at an earlier hearing in the case. [6 Jan 2021]
Beijing court sentences banker to life imprisonment
Beijing’s Higher People’s Court has upheld a ruling by Beijing’s First Intermediary People’s Court, sentencing a bank manager to life imprisonment for stealing the equivalent of US$400 million from clients. The individual – a former head of a bank branch in Beijing – was found guilty of using fake wealth management contracts to raise US$412 million from customers in a Ponzi scheme between 2013 and 2017. The bank launched an internal investigation into the matter, and the Beijing banking regulator has fined the Beijing branch around US$4 million and banned 13 employees from the industry. [14 Dec 2020]
NAFMII widens default inquiry, accusing brokerage firm of manipulation
The National Association of Financial Market Institutional Investors (NAFMII) – a self-regulatory body – has widened its investigation into a bond default by a state-owned coal miner by accusing a brokerage firm of manipulation. The firm and its subsidiaries are suspected of i. providing assistance to the mining company in relation to the illegal issuance of bonds; ii. manipulating the market, and; iii. committing other violations involving interbank corporate debt instruments and exchange-traded corporate bonds. [18 Nov 2020]
Nanjing court sentences official to imprisonment for accepting bribes
The Nanjing Intermediate People’s Court has sentenced a former Party Secretary and Director of a regulatory body to 10 years and six months in prison for accepting bribes worth more than 6.91 million yuan. The individual has also been fined 700,000 yuan. [3 Nov 2020]