Financial Crime World

Hong Kong’s Strategic Approach to Financial Crime Prevention: A Closer Look at AML Compliance and Regulatory Framework

Overview

Hong Kong’s financial sector is a global commerce and innovation hub, attracting world-leading fintechs and acting as a gateway to China and Asian financial markets. However, this major financial hub also faces the ongoing challenge of money laundering and terrorist financing threats. Hong Kong’s response: strict anti-money laundering (AML) and counter-terrorist financing (CTF) rules and regulations.

In this article, we delve deeper into the key aspects of AML compliance in Hong Kong, focusing on:

  • Regulatory frameworks
  • Legislation
  • Practical measures for financial institutions

Regulatory Frameworks and Compliance

FATF Assessment

Hong Kong has not been identified by the Financial Action Task Force (FATF) as having strategic AML deficiencies. According to the 2019 Mutual Evaluation Report, Hong Kong was deemed compliant for 11 and largely compliant for 25 of the 40 FATF Recommendations. The city got 0 highly effective and 6 substantially effective ratings for effectiveness and technical compliance.

US Department of State Money Laundering Assessment

Despite being compliant with FATF standards, Hong Kong is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes. Financial institutions operating in Hong Kong should be aware of this classification.

Regulators and Guidelines

The Hong Kong Monetary Authority (HKMA) is the city’s central bank and financial regulatory body, preserving financial stability and overseeing AML and CTF laws. Institutions must adhere to HKMA policies, FATF standards, and the Asia Pacific Group on Money Laundering (APG). The HKMA updates guidelines and reports on its objectives, which include national capacity enhancement and international cooperation in global AML and CTF efforts.

Legislations and Regulations

Two key pieces of legislation underpin Hong Kong’s AML framework: the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the Banking Ordinance (BO).

  • The former outlines detection and prevention procedures, while the latter mandates suitable accounting systems.
  • Additional relevant laws include the Organized and Serious Crimes Ordinance (OSCO), Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP), and various UN resolutions.

Responsibilities and Best Practices for Financial Institutions

Regulatory requirements necessitate financial institutions to closely monitor relationships with customers and foreign jurisdictions. By maintaining a robust compliance programme, institutions can strengthen their positions, better serve customers, and contribute positively to the global economy.

Transaction Monitoring

Fintech companies in Hong Kong must install a monitoring system to identify potential money laundering activities. Regularly assessing customer accounts for suspicious transactions is crucial. Such transactions may include those involving high-risk countries, transactions violating international sanctions, unusually high volumes, or transactions that break the law.

Sanctions Screening

Hong Kong’s anti-money laundering efforts include payment sanctions screening in accordance with the United Nations (Anti-Terrorism) Ordinance (UNATMO) and the United Nations Sanctions Ordinance (UNSO). Financial institutions should familiarise themselves with sanctions lists published by the Commerce and Economic Development Bureau and Hong Kong Government Gazette.

Customer Due Diligence (CDD)

Financial institutions must conduct thorough CDD checks before and throughout customer interactions, verifying identity and business type. This process involves continuous PEP (Politically Exposed Person) checks, identity verification, media monitoring for money laundering involvement, and monitoring for altered risk profiles.

How Tookitaki Can Help

Managing Hong Kong’s AML compliance can be burdensome, leading to productivity losses, human error, and potential fines. With an automated AML solution and cutting-edge software, Tookitaki assists institutions in addressing these challenges, enabling them to meet regulatory requirements, streamline administrative processes, and enhance stakeholder trust.

Partnership in the Anti-Financial Crime (AFC) Ecosystem

The AFC Ecosystem, a collaborative network of experts, facilitates intelligence-sharing and innovative problem-solving to combat financial crime threats. This network of partners helps remove the information vacuum caused by siloed operations and provides a powerful edge against complex financial crime challenges.

Join the AFC Ecosystem and Tookitaki today to strengthen your Hong Kong business’s compliance capabilities. Contact us to learn more about our services and expertise.