SFC Finalizes Consultation Conclusions on AML Guidelines

Updated AML/CFT guidelines are expected to come into effect from 30 September 2021, except for the requirements of new cross-border correspondent relationships. 

The Securities and Futures Commission (SFC) of Hong Kong has finally issued its consultation conclusions on the country’s AML/CFT guidelines for licensed corporations.

The amendments were proposed to align Hong Kong’s Anti-money Laundering guidelines with the global standards set by the Financial Action Task Force (FATF).

The insulation began in September 2020, whereby the Securities and Futures Commission (SFC) was seeking to gain insights from market participants and other interested parties regarding some proposed amendments to the Guideline on Anti-Money Laundering and Counter Financing of Terrorism. 

The SFC stated that they received 26 written submissions in total which showed support for the proposals. However, a “considerable number” of remarks were made on the proposed requirements for cross-border correspondent relationships.

The consultation had proposed the introduction of requirements such as due diligence and robust risk mitigation measures for the business relationships in the securities sector, which are similar to cross-border correspondent banking relationships. 

The feedback from the SFC provides further clarity and flexibility in meeting the requirements for cross-border correspondent relationships. A streamlined approach for such relationships with affiliated companies has also been introduced.

“Under the streamlined approach, licensed corporations would be able to apply additional due diligence and other risk-mitigating measures for cross-border correspondent relationships with affiliated companies through their group AML/CFT programmes,” says the SFC report. 

The guidelines have also highlighted some key risk factors and sources of information that must be considered when licensed corporations conduct their institutional risk assessments. These risk assessment protocols must be conducted at least once every two years, or whenever a trigger event occurs.

Licensed corporations with overseas branches and subsidiaries of licensed corporations must also perform a group-wide risk assessment. 

The SFC has also limited the type or extent of CDD (customer due diligence) measures that must be used for verifying the identities of low-risk customers, in line with the risk-based approach. Enhanced CDD measures should be implemented for customers that fall under the PEP lists and high-risk jurisdiction categories. 

Other updates to the guidelines include enhancements to the list of red flag indicators for suspicious transactions and activities, requirements to perform third-party deposit due diligence before settling transactions with client-deposited funds and additional guidance on the source of funds and source of wealth checks.

Hong Kong’s updated AML/CFT guidelines are expected to come into effect from 30 September 2021, except for the requirements of new cross-border correspondent relationships, which will take effect on 30 March 2022 after a six-month transition period.

The detailed consultation conclusions can be viewed here.

Suggested Read: How can you prepare for AML Compliance – Ultimate AML Guidelines For Starters