Hong Kong Exposed to Medium-Low Level of Proliferation Financing Risk

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Hong Kong, a significant financial and trade hub, faces vulnerabilities in the proliferation financing (PF) risk due to its proximity to countries sanctioned by the United Nations Security Council. According to a recent assessment, Hong Kong’s PF risk level is rated as medium-low.

Openness and Business-Friendly Environment

The city’s openness and business-friendly environment make it an attractive target for those seeking to exploit vulnerabilities in the financial system. Additionally, its status as a major transportation hub and use of virtual accounts (VAs) for fund raising and movement could also be exploited by proliferation actors.

Mitigation Efforts

However, Hong Kong has taken steps to mitigate these risks through a robust counter-proliferation system underpinned by a comprehensive legal framework that implements sanctions imposed by the UNSC. The city’s strategic trade control regime and institutional framework, which includes effective coordination among policy bureaux, departments, law enforcement agencies, and regulators, also help to reduce PF vulnerabilities.

Five Key Areas of Work

In response to identified risks, five major areas of work are considered necessary:

• Enhancing the Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) legal framework.
• Strengthening risk-based supervision and partnerships.
• Stepping up outreach and awareness-raising efforts.
• Monitoring new and emerging risks.
• Strengthening law enforcement efforts and intelligence capability.

Government Initiatives

The Hong Kong government has already taken steps to address AML/CFT gaps, including:

• Introducing a licensing regime for virtual asset service providers (VASPs).
• Implementing a registration regime for designated payment systems (DPMS).
• Coordinating closely with financial regulators and law enforcement agencies to identify and mitigate existing and emerging risks.

Targeted Supervisory Strategies

The city’s authorities have developed targeted supervisory strategies for designated non-financial businesses and professions (DNFBPs). They also co-organize seminars and webinars to enhance awareness of the need to prevent money laundering and terrorist financing.

Conclusion

With its robust counter-proliferation system and ongoing efforts to mitigate PF risks, Hong Kong is well-positioned to maintain its position as a major financial hub while also protecting against proliferation financing threats.