Mitigating Money Laundering and Terrorism Financing Risks in Hong Kong’s Stored Value Facility Sector
Introduction
The Hong Kong Monetary Authority (HKMA) has been actively working to address money laundering and terrorism financing (ML/TF) risks in the Stored Value Facility (SVF) sector. In this article, we will discuss the current state of ML/TF risks in the SVF sector, highlighting key vulnerabilities and the measures being taken to mitigate them.
Risk Assessment
The SVF sector has been identified as having a medium level of vulnerability to ML/TF risks. This assessment is based on various factors, including the high volume of cash transactions and the potential for misuse of prepaid cards.
Cash Withdrawal Patterns
More than 60% of cash withdrawals in Hong Kong take place at SVF licensee’s dedicated service points (e.g., convenience stores) or ATMs, while the remaining amount is withdrawn via prepaid cards in other jurisdictions. This highlights the need for closer monitoring and regulation of these transactions to prevent ML/TF activities.
Design of CDD-Exempt Products
SVF licensees have designed their products with regulatory thresholds in mind to reduce vulnerabilities. However, this also raises concerns about the potential for misuse of these products by individuals or organizations seeking to launder money or finance terrorism.
Higher-Risk Products
To mitigate risks concerned, SVF licensees generally adopt proportionate control measures, such as enhanced customer due diligence and monitoring of transactions.
AML/CFT Systems
Effective Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) systems are essential for managing and mitigating ML/TF risks. The HKMA has been conducting assessments of these systems to facilitate understanding of the overall vulnerability of the SVF sector.
Supervisory Engagement
The HKMA has been engaging with SVF licensees through various means, including:
- Issuance of guidelines
- On-site examinations
- Off-site reviews
- Meetings with senior management and board of directors
- Industry engagement through AML/CFT forums
- Collection of periodic financial crime risk data
Next Steps
The HKMA has identified areas for further action to address ML/TF risks in the SVF sector, including:
- Enhancing the regulatory framework
- Strengthening understanding of ML/TF risks through ongoing cooperation with law enforcement agencies and other financial regulators
- Continuing risk-based supervision
- Strengthening partnership with the SVF sector
- Furthering cooperation with regulatory authorities in other jurisdictions
- Supporting innovative means to implement financial crime controls effectively
Conclusion
The Hong Kong Monetary Authority is committed to mitigating ML/TF risks in the Stored Value Facility sector. Through continued vigilance and cooperation between regulatory bodies, law enforcement agencies, and the SVF sector, we can reduce the vulnerabilities associated with these risks and promote a safer financial environment for all.