Hong Kong Monetary Authority Revises KYC Guideline to Strengthen Money Laundering Prevention

Key Updates to Customer Acceptance Policies and Due Diligence Procedures for Financial Institutions

The Hong Kong Monetary Authority (HKMA) has issued a supplement to its Guideline on Prevention of Money Laundering and Terrorist Financing, updating its regulatory requirements to reflect recent international developments and enhanced standards in combating financial crimes.

Contents

1. Introduction to the updated guidelines
   • Significant developments in anti-money laundering (AML) and counter-terrorist financing (CTF) efforts
   • The need for regulatory adaptation
2. New Customer Acceptance Policies
   • Identifying and managing high-risk customers
   • Internal guidelines and approval processes
3. Enhanced Customer Due Diligence
   • Identifying the direct customer
   • Verifying identity
   • Determining beneficial ownership and control
   • Verifying beneficial owners or transaction representatives
   • Understanding the purpose and reason for opening an account
   • Ongoing monitoring and due diligence
4. Adverse Jurisdictions
   • Considering jurisdictional risk factors

1. Introduction to the Updated Guidelines

In response to significant developments in the fight against financial crimes like money laundering and terrorist financing, the HKMA has updated its regulatory requirements through a supplement to the Guideline on Prevention of Money Laundering and Terrorist Financing. This update is pending a comprehensive review of the overall guidelines.

2. New Customer Acceptance Policies

Financial institutions (FIs) are required to develop and implement policies and procedures to identify high-risk customers. These institutions should adopt a more extensive due diligence process and establish clear internal guidelines for managing business relationships.

3. Enhanced Customer Due Diligence

Under the updated guideline, the customer due diligence process involves several new requirements:

• Identifying the direct customer and obtaining their identity
• Verifying identity using reliable, independent sources
• Determining beneficial ownership and control
• Verifying the identity of beneficial owners and/or the person conducting transactions on their behalf
• Obtaining information on the purpose and reason for opening the account
• Conducting ongoing due diligence and monitoring throughout the business relationship

The HKMA also encourages FIs to consider using intermediaries for customer due diligence and emphasizes the importance of ongoing monitoring to ensure compliance with the guideline’s requirements.

4. Adverse Jurisdictions

When conducting customer due diligence, FIs must consider the location of counterparties, jurisdictions with inadequate FATF Recommendations implementation, and other factors that may suggest a higher money laundering or terrorist financing risk. (Details on this topic can be found in Sections 11 to 15 of the updated guideline.)

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For further details, please refer to the original text or consult the Hong Kong Monetary Authority's official documentation. The effective date of these updates is November 1, 2010.