Financial Crime World

Here is the article in Markdown format:

Financial Institutions Urged to Conduct Thorough ML/TF Risk Assessments

===========================================

The Hong Kong Monetary Authority (HKMA) has emphasized the importance of financial institutions conducting comprehensive Money Laundering (ML) and Terrorism Financing (TF) risk assessments to identify, assess, and understand their ML/TF risks.

According to a recent circular issued by the HKMA, institutions should conduct an institutional ML/TF risk assessment that covers various factors, including:

  • Customer risk factors
  • Country risk factors
  • Product and service risk factors
  • Transaction and delivery channel risk factors
  • Other relevant risk factors

The assessment should consider all relevant risk factors before determining the overall level of risk and the appropriate mitigation measures. Senior management approval is required for the risk assessment results, and institutions must also have a process in place to keep the assessment up-to-date and provide the results to the HKMA when required.

The HKMA has specified that the scale and scope of the institutional ML/TF risk assessment should be commensurate with the nature, size, and complexity of the institution’s business. Institutions are also advised to consider any higher risks identified in other relevant risk assessments, such as Hong Kong’s jurisdiction-wide ML/TF risk assessment.

For institutions with branches or subsidiaries located outside Hong Kong, a group-wide ML/TF risk assessment is required. In addition, if an institution is part of a financial group and a group-wide or regional ML/TF risk assessment has been conducted, it may make reference to or rely on those assessments provided that they adequately reflect the ML/TF risks posed to the institution in the local context.

The HKMA also emphasizes the importance of keeping the institutional ML/TF risk assessment up-to-date by conducting it every two years and upon trigger events which are material to the institution’s business and risk exposure. Institutions should also identify and assess the ML/TF risks that may arise from the development of new products, new business practices, or the use of new technologies.

The HKMA has reiterated that financial institutions must conduct a customer risk assessment prior to establishing a business relationship with a customer, which includes assessing the ML/TF risks associated with the proposed relationship and determining the extent of Customer Due Diligence (CDD) measures to be applied. The risk assessment should also assist institutions in differentiating between the risks of individual customers and business relationships.

Key Takeaways

  • Financial institutions must conduct an institutional ML/TF risk assessment that covers various factors, including customer, country, product and service, transaction and delivery channel, and other relevant risk factors.
  • Institutions must consider all relevant risk factors before determining the overall level of risk and the appropriate mitigation measures.
  • Senior management approval is required for the risk assessment results, and institutions must also have a process in place to keep the assessment up-to-date and provide the results to the HKMA when required.
  • Institutions with branches or subsidiaries located outside Hong Kong must conduct a group-wide ML/TF risk assessment.

Source

Hong Kong Monetary Authority. (Date). [Circular/Guideline]. Retrieved from [Source URL]