Financial Crime World

Hong Kong Authorities Reiterate Importance of Risk-Based Approach to Anti-Money Laundering

Hong Kong Monetary Authority Reminds Authorized Institutions of the Importance of Effective Execution of RBA for Customer Due Diligence

On February 8, 2024, the Hong Kong Monetary Authority (HKMA) issued a reminder to Authorized Institutions (AIs) regarding the importance of effective execution of the risk-based approach (RBA) for customer due diligence (CDD).

Background

Since the implementation of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) in 2012, the HKMA has provided guidance, feedback, and training material on anti-money laundering and counter-financing of terrorism (AML/CFT) measures.

Key Points for AIs to Note

  • Most AIs have implemented CDD measures that are appropriate and in line with identified money laundering and terrorist financing (ML/TF) risks.
  • However, there is still room for improvement in the design and execution of CDD. For example:
    • Information requests to customers should be risk-sensitive, not excessive, and not duplicate information already held by or known to the AI.

Guiding Principles of RBA

The HKMA has reminded AIs of the guiding principles of RBA in relation to CDD:

  • Risk Differentiation: AIs should differentiate between high-risk and low-risk customers.
  • Proportionality: The level of CDD measures should be proportionate to the risk posed by the customer.
  • No “Zero Failure” Regime: AIs are not expected to achieve a 100% success rate in identifying ML/TF risks.

Smart Tips for Private Banking

The HKMA has shared smart tips for private banking, covering principles relevant to all AIs:

  • Establishing the source of wealth and source of funds for politically exposed persons (PEPs)
  • Balancing customer experience with managing ML/TF risks
  • Providing sufficient support to frontline staff to execute CDD procedures efficiently

Next Steps

The HKMA will continue to maintain close engagement with the industry and provide further guidance where appropriate. Specifically, following the latest amendment to the AMLO, the authority is preparing new practical guidance on PEP-related AML/CFT controls, focusing on how to apply RBA on former PEPs.

For any questions or concerns regarding this circular, please contact aml@hkma.iclnet.hk.