Financial Crime World

Hong Kong Financial Institutions Face Stringent Due Diligence Requirements

Guidance Document Issued to Aid Compliance with CRS Regulations

The Hong Kong government has recently issued a guidance document aimed at helping financial institutions comply with their obligations under Part 8A of the Inland Revenue Ordinance (Cap. 112). This move is in line with the Common Reporting Standard (CRS) set by the Organisation for Economic Co-operation and Development (OECD), which requires automatic exchange of financial account information between jurisdictions.

Key Requirements for Financial Institutions

Financial institutions must conduct due diligence on their customers to obtain required information under the CRS. The following are some key requirements:

  • Identify customer’s tax residency, reporting status, and classification as a reportable or non-reportable person
  • Conduct specific requirements for various types of accounts, including:
    • Pre-existing individual accounts
    • New individual accounts
    • Entity accounts
    • Investment entities with regularly traded securities
  • Classify trusts and collective investment schemes for reporting purposes

Special Considerations for Financial Institutions

In addition to the CRS requirements, financial institutions must also consider the tax treatment of trusts and collective investment schemes. The guidance provides detailed information on how these entities should be classified for reporting purposes.

Compliance Guidelines for Financial Institutions

To ensure compliance with the new regulations, financial institutions are advised to:

  • Review existing procedures and update them as necessary
  • Refer to the OECD’s Automatic Exchange Portal for additional guidance and materials

Deadline for Implementation

The deadline for implementing the CRS requirements in Hong Kong has not been specified, but financial institutions are urged to act promptly to avoid any potential penalties or reputational damage.

By following the guidelines outlined in this document, financial institutions can ensure they meet their obligations under Part 8A of the Inland Revenue Ordinance and maintain a compliant due diligence process.