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HKMA Issues Mandate to Encourage Innovation in AML/CFT

Richard Marley
August 12, 2021
3 minutes read
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Hong Kong’s Monetary Authority is set to launch interactive lab sessions to experiment with innovations that can be used to enhance AML/CFT efforts.

The initial focus of launching AML and Financial Crime Regtech Labs will be to experiment with new technologies and emerging data analytic techniques. The plan will come into effect in November 2021.

HKMA announced that the interactive lab sessions will allow experimentation in a facilitated environment using simulations of real-life AML/CFT Regtech use cases. NLP (Natural Language Processing) and network analytics will be the main focus in the first experiment.

This plan has been launched as part of a wider “Fintech 2025” strategy to encourage the use of AML/CFT technologies in the banking sector. The circular issued to the banks states that the initiative will promote network analytics capabilities to combat online frauds and money mule networks.

In the fourth quarter of 2021, the HKMA will also be conducting a review on the progress made by the Fraud and Money Laundering Intelligence Taskforce (FMLIT) member banks for the efficient development of network analytics. The findings will then be shared with the wider industry in 2022.

Furthermore, the HKMA will be working closely with the existing AML/CFT framework of the country to gather suggestions and gain stakeholder interest for the promotion of innovative technologies to tackle AML/CFT issues.

@hkmagovhk has issued its second Regtech Adoption Practice Guide, which focuses on Regtech solutions assisting Anti-Money Laundering/Counter-Financing of Terrorism efforts in the area of ongoing monitoring of customers.

Read more: https://t.co/ORUEYe9Dy8 @KPMGChina pic.twitter.com/Jlv3e3uXJs

— HKMA 香港金融管理局 (@hkmagovhk) July 26, 2021

Further details are expected to be announced in November at the Hong Kong Fintech Week, 2021. The above-mentioned initiative will fall under the HKMA’s Fintech Supervisory Sandbox 3.0 and other innovative events.

The circular has come forth following the recent report issued by the global financial watchdog, the Financial Action Task Force (FATF) regarding the use of machine learning and natural language processing to improve the speed, quality, and efficiency of AML/CFT measures.

“In line with global efforts, the HKMA plans to take further steps to support AML/CFT innovation and help strengthen [banks’] implementation of the risk-based approach to AML/CFT,” the HKMA said.

Banks have been directed to provide required information to the HKMA on an urgent basis so that an updated review over AML and Financial Crime Regtech adoption can be presented. Details will be communicated with individual banks shortly. Analysis of the provided data will be disclosed in a September webinar.

Disclaimer: No warranty is herein provided that the information contained in this document is accurate, up-to-date, and/or complete. In no circumstance(s), does such information constitute legal or any other advice. Any person who intends to use, rely, pass-on, or re-publish the information contained herein in any way is solely responsible for the same. We suggest to verify the information and/or obtain expert advice independently if required.

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UK Publishes First National Risk Assessment of Proliferation Financing
The UK is at a high risk of proliferation financing for Korea and Iran, while UK financial institutions remain the main target.

The UK has published its first national risk assessment (NRA) of proliferation financing risks, following the collection of views and evidence from the government, private sector, and academic and research partners, highlighting the proliferation financing risks facing the UK.

The UK is one of the first jurisdictions to carry out such an assessment.

While the UK currently has robust practices in place for combating proliferation financing activities, malign actors involved in proliferation financing seek to exploit the UK’s stability in the global economy and international financial system. The act involves the use of funds for facilitating chemical, biological, radiological, and nuclear (CBRN) programmes which pose a threat to the UK’s national security objectives and threaten international peace.

The key findings of the proliferation financing NRA have been identified as the following:

The UK’s financial sector is at high risk from proliferation actors. The UK’s financial services industry, particularly the banking and insurance sectors, is especially at risk

The Democratic People’s Republic of Korea (DPRK) and Iran are the most significant proliferation financing actors at the state level

The private sector has limited awareness regarding proliferation financing compared to other risks, such as money laundering and terrorist financing

The notice issued by the UK government states that “a lack of awareness of proliferation financing in parts of the UK economy can lead to a lack of understanding of how certain industrial products, for example, may be manipulated for hostile use or for use in a CBRN programme”.

Despite the above-mentioned threats, the NRA highlights the robust counter-proliferation legal framework in place in the UK that protects the country from proliferation financing.

The UK’s autonomous financial sanctions regimes targeting CBRN proliferation, as well as other regulations in the UK, including UN sanctions regimes, export control regimes, and other tools available to the UK Government, limit opportunities for proliferating actors to exploit the UK to obtain financing for CBRN capabilities.

The full assessment can be viewed here.

Suggested Read: FATF Issues New Guidance on Mitigating Proliferation Financing Risk

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FATF’s Recommendations

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Acquire registries of the company to get updated information on the beneficial ownership of the company (the Registry Approach)

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Corporate Transparency Act in the US

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FinCrime through shell companies and imposters has been a problem for the corporate sector for years. Money launderers that pretend to be potential investors and shell companies approaching with fascinating partnership opportunities has become the oldest trick in the book. Unfortunately, many companies still fall prey to these activities, resulting in hefty financial losses, exposure of confidential data, and a damaged brand reputation. With numerous laws in place to combat money laundering and terror financing, there must be an adequate solution in place for screening every entity before developing any business relationships. Shufti Pro’s AI-backed business verification is what every firm needs at the moment. It will not only help you screen partners and intermediaries, but also assist you in staying compliant with the rigid KYB regulations.

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HKMA Issues Mandate to Encourage Innovation in AML/CFT

Regulatory Approach to Merchant Onboarding

FATF’s Recommendations

6AMLD in the EU

Corporate Transparency Act in the US

How Shufti Pro is Helping Businesses Onboard Legitimate Merchants

In a Nutshell…

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.

HKMA Issues Mandate to Encourage Innovation in AML/CFT

What is Merchant Verification?

Regulatory Approach to Merchant Onboarding

FATF’s Recommendations

6AMLD in the EU

Corporate Transparency Act in the US

How Shufti Pro is Helping Businesses Onboard Legitimate Merchants

In a Nutshell…

Let’s prove your

customer’s identity

with Shuftipro.

Let’s prove your customer’s

identity with Shuftipro.