Financial Crime World

Hong Kong’s Customer Due Diligence Requirements: A Guide for Financial Institutions

In Hong Kong, the primary legislation governing anti-money laundering (AML) includes:

  • The Drug Trafficking (Recovery of Proceeds) Ordinance
  • The Organized and Serious Crimes Ordinance
  • The United Nations (Anti-Terrorism) Measures Ordinance

The banking and securities regulators, the Hong Kong Monetary Authority and Securities and Futures Commission, have issued additional guidelines on AML procedures in 2000 and 2006 respectively.

Enhanced Due Diligence Requirements

According to the revised guidelines, financial institutions are expected to apply enhanced AML assessment requirements to all customers, including existing ones. This means that intermediaries should consider obtaining additional identification information from higher-risk customers, particularly those under categories such as:

  • Companies with complex ownership structures
  • Politically exposed persons (PEPs)
  • Correspondent banking relationships

Risk-Based Approach

Both the Hong Kong Monetary Authority and Securities and Futures Commission advocate for a risk-based AML approach, which requires financial institutions to:

  • Gather sufficient information about their customers
  • Check publicly available data to establish whether they are PEPs
  • Consider several risk factors before opening an account for a PEP

The decision to open an account for a PEP should be taken at a senior management level.

Correspondent Banking Relationships

Financial institutions providing correspondent banking services must also:

  • Gather sufficient information about respondent banks
  • Seek approval from senior management before establishing new relationships
  • Exercise particular care when dealing with respondent banks in jurisdictions that do not meet international AML standards or allow direct use of correspondent accounts by their customers

Effective Identification Procedures

To satisfy the true identity of customers, financial institutions should apply effective identification procedures, which may include:

  • Requiring additional documents
  • Independent contact with the customer
  • Verification of first payments

For individuals, this includes obtaining:

  • Name
  • Residential address
  • Date of birth
  • Nationality
  • Other identifying information from official or reputable sources such as passports or ID cards

For corporates, financial institutions should obtain:

  • Certificate of Incorporation/Business Registration Certificate
  • Board resolution authorizing account opening
  • Identification documents for directors, principal shareholders, and account signatories

Additional requirements may apply to higher-risk customers.

Identifying Beneficial Ownership and Control

Financial institutions are also required to identify beneficial ownership and control, including the identity of individuals who:

  • Ultimately own or control direct customers
  • Conduct transactions on behalf of others

Simplified Due Diligence Arrangements

In some cases, a simplified due diligence arrangement may be adopted, including for financial institutions authorized by the Hong Kong Monetary Authority or Securities and Futures Commission, public companies subject to regulatory requirements, government organizations in non-NCCT jurisdictions with low ML risk, and other equivalent entities.

Disclaimer

This publication is intended as general guidance only and does not constitute professional advice. Readers should consult with experts before taking any action based on this information.