Financial Crime World

Hong Kong’s Anti-Money Laundering Regime: A Compliance Review by FATF (2023)

Hong Kong, a significant global financial hub under China, has undergone a follow-up evaluation by the Financial Action Task Force (FATF) in 2023. This assessment focuses on Hong Kong’s progress in implementing the FATF Recommendations aimed at countering money laundering (ML) and terrorist financing (TF).

The evaluation was based on the following rating key: C (Compliant), LC (Largely Compliant), PC (Partially Compliant), NC (Non-Compliant).

Assessing Risk & Applying a Risk-Based Approach (R.1)

  • Rating: Largely Compliant (LC)
  • Progress: Hong Kong authorities have shown progress in implementing a risk-based regulatory framework.

National Cooperation and Coordination (R.2)

  • Rating: Largely Compliant (LC)
  • Progress: Notable developments in inter-agency communication and cooperation between the HKMA and HKPF.

Money Laundering Offence (R.3)

  • Rating: Compliant (C)

Confiscation and Provisional Measures (R.4)

  • Rating: Compliant (C)
  • Progress: Hong Kong has the legal frameworks to enable confiscation and freezing of assets suspected of ML/TF.

Terrorist Financing Offence (R.5)

  • Rating: Compliant (C)

Targeted Financial Sanctions Related to Terrorism & Terrorist Financing (R.6)

  • Rating: Compliant (C)
  • Progress: The necessary legal frameworks are in place to implement financial sanctions.
  • Rating: Compliant (C)

Non-profit Organisations (R.8)

  • Rating: Compliant (C)
  • Progress: Regulations and oversight mechanisms in place to prevent misuse.

Financial Institution Secrecy Laws (R.9)

  • Rating: Non-Compliant (NC – Partially)
  • Concerns: Implementation issues regarding financial institution secrecy laws in cases involving ML/TF.

Customer Due Diligence (R.10)

  • Rating: Largely Compliant (LC)
  • Progress: Measures improved, especially for complex and beneficial ownership arrangements.

Record Keeping (R.11)

  • Rating: Largely Compliant (LC)
  • Progress: There have been improvements in the financial sector’s record keeping practices.

Politically Exposed Persons (R.12)

  • Rating: Partially Compliant (PC)
  • Needs improvement: Identification and risk assessment of PEPs.

Correspondent Banking (R.13) & Money or Value Transfer Services (R.14)

  • Rating: Compliant (C)

New Technologies (R.15)

  • Rating: Partially Compliant (PC)
  • Ongoing efforts: Ensuring AML/CFT regulations keep pace with new technologies.

Wire Transfers (R.16)

  • Rating: Largely Compliant (LC)

Reliance on Third Parties (R.17)

  • Rating: Largely Compliant (LC)

Internal Controls & Foreign Branches/Subsidiaries (R.18)

  • Rating: Largely Compliant (LC)

Higher-risk Countries (R.19)

  • Rating: Largely Compliant (LC)

Reporting of Suspicious Transactions (R.20)

  • Rating: Largely Compliant (LC)

Tipping-off and Confidentiality (R.21)

  • Rating: Compliant (C)

DNFBPs: Customer Due Diligence (R.22)

  • Rating: Partially Compliant (PC)
  • Needs improvement: Customer due diligence measures regarding designated non-financial businesses and professions.

DNFBPs: Other Measures (R.23)

  • Rating: Largely Compliant (LC)

Transparency & Beneficial Ownership of Legal Persons (R.24)

  • Rating: Largely Compliant (LC)

Transparency & Beneficial Ownership of Legal Arrangements (R.25)

  • Rating: Non-Compliant (NC)
  • Concerns: Inadequacy of the current regulatory framework in obtaining and sharing beneficial ownership information of legal arrangements.

Regulation & Supervision of Financial Institutions (R.26)

  • Rating: Largely Compliant (LC)

Powers of Supervisors (R.27)

  • Rating: Largely Compliant (LC)

Regulation & Supervision of DNFBPs (R.28)

  • Rating: Largely Compliant (LC)

Financial Intelligence Units (R.29)

  • Rating: Compliant (C)

Responsibilities of Law Enforcement & Investigative Authorities (R.30) & Powers of Law Enforcement & Investigative Authorities (R.31)

  • Rating: Compliant (C)

Cash Couriers (R.32)

  • Rating: Compliant (C)

Statistics (R.33)

  • Rating: Compliant (C)

Guidance & Feedback (R.34)

  • Rating: Largely Compliant (LC)

Sanctions (R.35)

  • Rating: Largely Compliant (LC)

International Instruments (R.36)

  • Rating: Largely Compliant (LC)
  • Rating: Largely Compliant (LC)

Mutual Legal Assistance: Freezing & Confiscation (R.38)

  • Rating: Largely Compliant (LC)

Extradition (R.39)

  • Rating: Largely Compliant (LC)

Other Forms of International Cooperation (R.40)

  • Rating: Largely Compliant (LC)

Hong Kong’s compliance review by the FATF underlines the continuous efforts made to strengthen its anti-money laundering and counter-terrorist financing regime to meet international standards.