Hong Kong Cracks Down on Money Laundering and Terrorist Financing: AML/CFT Policies and Guidance for Authorized Institutions
In response to the global fight against Money Laundering (ML) and Terrorist Financing (TF), the Hong Kong Monetary Authority (HKMA) has published updated guidelines for Authorized Institutions (AIs), including Registered Institutions (RIs), to help them comply with the Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) statutory and regulatory requirements in Hong Kong. This article offers an overview of the HKMA’s Guideline on AML/CFT for Authorized Institutions.
Significance of the Guideline
The Guideline, last revised in October 2018 with consultations in January 2023, covers various aspects of AML/CFT policies in Hong Kong. It requires Authorized Institutions to follow these guidelines to mitigate ML/TF risks and adhere to international standards.
Overview of the Guideline
The Guideline includes twelve chapters, with Chapter 1 providing an overview of the AML/CFT environment and the significance of following the guidelines.
Overview of AML/CFT Environment
The world is witnessing increased efforts to combat ML/TF and proliferation financing (PF) on a global scale. Hong Kong, as a member of the international Financial Action Task Force (FATF), is committed to implementing FATF Recommendations as the globally recognized standards for combating ML/TF and PF.
Significance of Following Guidelines
Failure to comply with these guidelines may lead to disciplinary actions against the institution. In addition, RIs and associated entities are advised to follow the SFC Guideline regarding customer definition and identification of cross-border correspondent relationships.
Key Components of the Guideline
Risk-based Approach (RBA)
Chapter 2 discusses the Risk-based Approach (RBA) in detail, explaining how to conduct risk assessments, identify factors contributing to ML/TF risks, and the importance of senior management approval and updating the risk assessment.
Essential Components of AML/CFT Systems
Chapter 3 outlines the essential components of AML/CFT Systems, including:
- Customer Due Diligence (CDD)
- Ongoing monitoring
- Terrorist financing
- Financial sanctions and proliferation financing
- Suspicious transaction reports and law enforcement requests
- Record-keeping
- Staff training
The following chapters delve deeper into each component, offering practical guidance for implementing effective AML/CFT policies.
Mandatory Requirements for AIs
The HKMA stresses that the guidelines are mandatory requirements for AIs and not following them may result in disciplinary actions against the institution.
Understanding Money Laundering and Terrorist Financing
Before discussing the components of the AML/CFT systems, it is essential to understand the nature of money laundering and its three stages—placement, layering, and integration—as well as ways terrorists obscure their links with funding sources.
Main Legislations
Some of the main legislations regarding ML/TF, PF, and financial sanctions in Hong Kong include:
- The Anti-Money Laundering and Counter-Terrorist Financing Ordinance
- Drug Trafficking (Recovery of Proceeds) Ordinance
- Organized and Serious Crimes Ordinance
- United Nations (Anti-Terrorism Measures) Ordinance
- United Nations Sanctions Ordinance
- Weapons of Mass Destruction (Control of Provision of Services) Ordinance
Conclusion
In conclusion, the HKMA’s Guideline for Authorized Institutions provides extensive coverage of essential AML/CFT policies, procedures, and controls. Following these guidelines ensures that Authorized Institutions effectively manage and mitigate ML/TF risks in accordance with international standards.