In Hong Kong, any person operating a money service is required to obtain a Money Service Operator (MSO) licence.
Money services include the following:
- a money changing service, i.e. a service for the exchanging of currencies that is operated in Hong Kong as a business; and
- a remittance service, i.e. operating in Hong Kong as a business a service of (i) sending, or arranging for the sending of, money to a place outside Hong Kong, (ii) receiving, or arranging for the receipt of, money from a place outside Hong Kong, or (iii) arranging for the receipt of money in a place outside Hong Kong.
The MSO licensing regime is overseen by the Hong Kong Customs & Excise Department (HKCE) pursuant to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO).
Updated licensing requirements – "local management office" and "local place for storage of books & records"
Recently, the HKCE has issued the "Circular to Money Service Operators - Licensing requirements for new/renewal application of a money service operator licence – 'Local management office' and 'local place for storage of books & records'". In addition to the pre-existing licensing requirements, the HKCE requires new or renewal applicants for MSO licenses to submit details of:
- for all MSOs, a local place for storage of books and records in respect of its money service transactions (LPS); and
- for MSOs operating a money service without particular premises, in addition to an LPS, a local management office (LMO).
The LPS is a physical place where the MSO licensee keeps its books and records in respect of its money service transactions in Hong Kong. The LMO is a physical office that the MSO licensee must maintain in Hong Kong, which acts as a point of interaction with HKCE officers to facilitate their supervision of the MSO licensee's compliance with its AMLO obligations. To such ends, the LPS must be under the control of the MSO licensee, and personnel in the LMO are required to include the director, ultimate owner, partner, sole proprietor and/or compliance officer of the licensee. Therefore the premises used for the purposes of both LPSs and LMOs must be the premises of the MSO licensee and cannot be the premises of a company secretarial firm, business center, accounting firm or other service provider.
Applications for MSO licences and renewals that do not contain the information designating an LPS or LMO will be deemed invalid by the HKCE. Further, if an MSO licensee fails to maintain the LPS or LMO in a manner as required by the HKCE, the HKCE may suspend and/or revoke its license.
Recent enforcement actions
On 9 January 2020, the HKCE issued a Statement of Disciplinary Action to announce that it has enforced sanctions against ten licensed MSOs for AMLO non-compliance. Seven of the licensees were found to have contravened Section 40 of the AMLO for failing to notify the HKCE in writing of a change in the details of bank accounts used to operate their money services within one month of such change. Separately and concurrently, two of the ten licensees were found to have breached Section 35 of the AMLO and two others Section 38 of the AMLO, as they did not obtain approval from the HKCE in respect of, respectively, the persons proposing to become their directors and the addition of new business premises other than those as specified in its issued license. Furthermore, one MSO licensee was found liable for breach of Section 39A of the AMLO for failing to display its original licence in a conspicuous place at the premises specified in its licence. The disciplinary action taken by the HKCE in these cases included public reprimands and/or orders for remedial action.
Under the AMLO, a person who, without reasonable excuse, commits the aforementioned offences is liable for a maximum fine of $50,000 and imprisonment for six months. While the HKCE has, in the present cases, taken a relatively lenient approach, this should not be seen as a sign of relaxation of compliance standards for MSO licensees. It is clear that MSOs are under greater scrutiny now, particularly as Hong Kong's fintech community continues to grow and thrive, and new business models involving money transfers are introduced to the market.
The way forward
The MSO sector in Hong Kong continues to be challenged by the risk of money laundering and terrorist financing (ML/TF). The additional licensing requirements and recent enforcement actions together paint a clear picture that the HKCE recognises the importance in combating ML/TF risks in the sector through enhanced regulatory supervision, and suggest that it intends to enhance the legal framework for anti-money laundering and counter-terrorist financing (AML/CTF) of the sector as well as strengthen its enforcement efforts against non-compliant licensees.
In light of this, MSO licensees should not solely pay lip service to their obligations to prevent and mitigate ML/TF risks. Licensees should monitor their compliance with AML/CTF obligations on an ongoing basis and regularly assess and update, if appropriate, related internal controls and procedures. Senior management and all other staff should be familiar with such controls and procedures, and should receive adequate training to ensure sufficient knowledge of their compliance-related duties.