Hong Kong’s New Anti-Money Laundering and Counter-Terrorist Financing Guideline: What Insurers Need to Know

Overview

Hong Kong’s Insurance Authority (IA) has published a new guideline on Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) for authorized insurers, reinsurers, and licensed insurance agents, agencies, and broker companies. The guideline, effective from June 2023, outlines the statutory and regulatory requirements for combating money laundering (ML) and terrorist financing (TF) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the Insurance Ordinance (IO).

• The new guideline provides practical guidance on ML and TF threats and vulnerabilities in the insurance industry
• Mandatory requirement for insurers and insurance intermediaries to adopt their own AML/CFT policies, procedures, and controls

Importance of a risk-based approach: Compliance with the guidelines is essential, and failure to do so may result in disciplinary actions.

Risk-Based Approach

Understanding RBA

The risk-based approach (RBA) is central to effectively implementing AML/CFT measures.

• Insurers and insurance intermediaries are expected to:
  • Identify
  • Assess
  • Understand their risks to ML and TF

Impact of RBA

The risk assessment provides a basis for:

• Targeting resources
• Implementing preventive measures commensurate with the level of risks

Institutional ML/TF Risk Assessment

Assessing Institutional Risks

The institutional ML/TF risk assessment helps insurers understand their vulnerability to ML and TF.

• Assessment conducted in relation to:
  • Customers
  • Countries, jurisdictions
  • Products/services/transactions
  • Delivery/distribution channels

Factors Considered in Assessment

• Target market
• Number of high-risk customers
• Cross-border transactions
• Technology usage

ML/TF Threats and Vulnerabilities

Threats in the Insurance Industry

• High-value, frequent, or irregular transactions
• Untraceable funds transfer methods

High-Risk Jurisdictions

• Weak governance, law enforcement, and regulatory regimes

Customer Complexity and Reluctance

• Structural complexity
• Reluctance to provide identification
• Adverse news

Intermediaries as Risk Factors

• Intermediaries can be used to channel illegitimate funds to insurers

Upcoming articles: In the following articles, we will discuss the specific measures insurers and insurance intermediaries need to take to mitigate ML and TF risks and maintain compliance with the AML/CFT regulations. Stay tuned for more information in the upcoming sections of this series.