This year has already witnessed record-breaking fines in the wake of the significant changes that occurred in 2018 for Hong Kong’s anti-money laundering (AML) and counter-terrorist financing regulatory regime.
In February 2019, Guosen Securities (HK) Brokerage Company Limited was fined a record HKD 15.2 million (USD 1.94 million) by the Hong Kong Securities and Futures Commission (SFC) for failing to report 2,200 suspicious third-party deposits between 2014 and 2015. However, the record was soon broken as several licensed corporations were fined millions, or even hundreds of millions, of Hong Kong dollars by the SFC for inadequate customer due diligence (CDD) in the following months.
Already in 2018, the SFC issued multiple guidelines and reports to urge licensed corporations to comply with the latest regulatory standards, as the Financial Action Task Force is evaluating Hong Kong’s AML environment in 2018–2019. In October 2018, the Hong Kong Monetary Authority (HKMA) also updated the Guideline on Anti-Money Laundering and Counter-Terrorist Financing. Apart from banks, other designated non-financial institutions – including legal professionals, estate agents, and trust or company service providers – are now also required to conduct CDD and keep records.
This revised SFC and HKMA Guidelines went into effect on 1 November 2018 and have included the following changes on CDD requirements:
- Allowing the use of technology, such as the internet, in non-face-to-face customer identification and verification
- Expanding the types of politically exposed persons (PEPs) to include international organization PEPs
- Implementing AML and counter-terrorist financing systems to all overseas branches and subsidiaries to ensure group-wide compliance with the CDD and record-keeping requirements
- Allowing the cessation of the CDD process if it would tip off the customer
It is expected that fines for AML and counter-terrorist financing could increase in the coming years to reflect the authorities’ plans to fight money laundering. Corporations should be aware of the latest requirements as regulatory bodies will employ real-time tools to support their ongoing supervisory and enforcement work to deter misconduct.